Robinhood's Unexpected Net Earnings: An Insightful Analysis and Future Predictions for the Stock

Net profit of Robinhood Markets Inс. (NASDAQ: HOOD) reached 30 million USD in Q4 2023, surprising Wall Street analysts who had projected another loss-making quarter and increasing the company’s share price by 15.2% to 13.65 USD.
On 19 February 2024, we analysed Robinhood Markets Inс.’s business model, examined its financial performance, conducted a technical stock analysis, and assessed its potential for further growth. We also discovered expert expectations for the shares in 2024 and identified which funds are actively buying them.

About Robinhood Markets

Robinhood Markets Inc. is an American financial technology company established in 2013 by Vlad Tenev and Baiju Bhatt.

It provides an online platform for trading stocks, cryptocurrencies, and other financial instruments.

One of the product’s features is commission-free trading, which immediately attracted the attention of beginner investors and those willing to lower their trading costs. Additionally, the platform made the stock market more accessible to a wide range of people by offering trading in fractional shares, enabling even small amounts to be invested in stocks of large companies.

Robinhood Market’s business model

Robinhood Markets Inc.’s business model is based on attracting a broad audience, providing users with accessible financial instruments, and income diversification.

Robinhood Markets Inc.’s revenue streams include:

1. Rebates from market makers and trading platforms. This involves remunerations from brokers and stock exchanges to which Robinhood Markets Inc. routes clients’ orders.
2. Stock borrowing. The company lends shares to clients willing to capitalise on selling them and charges a fee.
3. Interest on bank deposits. The corporation transfers idle funds to deposit accounts with partner banks and receives interest depending on deposit periods and amounts.
4. Cash Card service. Robinhood Markets Inc. offers Mastercard bank cards to its clients and receives interest for each transaction via these cards and a part of cashback.
5. Robinhood Gold subscription. The company sells access to a premium version of its service with extra features.

Analysis of Robinhood Markets’ financial position

Robinhood Markets Q4 2023 results compared to Q4 2022 statistics:

• Revenue: +23.94%, up to 471 billion USD, forecasted at 456.33 billion USD
• Net profit: 30 million USD versus a loss of 166 million USD
• Earnings per share: 0.03 USD versus a loss of 0.19 USD, with a forecast of a loss of 0.01 USD
• Number of clients: +420 thousand, reaching 23.4 million
• Clients’ deposits: +21%, reaching 4.6 billion USD
• Robinhood Gold subscribers: +25%, reaching 1.42 million
• Average revenue per user: +23%, reaching 81 USD

Robinhood Markets 2023 results compared to 2022 statistics:

• Revenue: +37.33%, reaching 1.87 billion USD
• Net loss: −47.37%, reaching 541 million USD
• Loss per share: −47.86% USD, reaching 0.61 USD

Financial forecast for 2024

Robinhood Markets Inc.’s management expects higher profitability and further growth in 2024 amid business expansion and new product introductions. The forecast is as follows:

• More than 20% deposit growth
• A rise in Robinhood Gold subscriptions
• A double-digit increase in trading market share
• Active introduction of new products
• Diversification of the company’s revenue model
• Workforce optimisation

According to the transcripts, the volume of deposits increased to 4 billion USD in January 2024, marking the highest value since 2021. Q1 2024 revenue is expected to reach 427 million USD.

Advantages of Robinhood Markets over its competitors

After its establishment, Robinhood Markets Inc. initially operated only in the US market. In 2019, while the company was authorised by the Financial Conduct Authority (FCA) to operate in the UK, only in November 2023 did it announce the launch of broker services in the UK. On 7 December 2023, the corporation announced its entry into the European market with the Robinhood Crypto cryptocurrency trading app.
According to CEO Vlad Tenev, tens of thousands of international clients await a chance to access the company’s services fully. The Robinhood team is actively exploring markets to expand the list of countries where it can provide brokerage services.

Hedge funds investing in Robinhood Markets stock

Based on data from WhaleWisdom.com, the top 5 hedge funds that made the most significant investments in Robinhood Markets Inc. stock in Q4 2023 are the following:

As evident, all these funds began purchasing Robinhood Markets Inc.’s securities in 2021-2022 when the financial company’s quotes dropped below the IPO price and further reached historical lows.

Robinhood Markets stock analysis for 2024

On 4 August 2021, five days after the IPO, Robinhood Markets Inc. stock peaked at 85.00 USD. A protracted decline followed, with the quotes plummeting 92% to 6.80 USD by 17 June 2022. Subsequently, the shares traded within the range of 8 USD-13 USD.

The release of the Q4 2023 earnings report triggered a breakout above the range’s upper boundary. At the time of writing, the stock was trading at 14.00 USD. A breakout of the upper boundary may indicate a high probability of further price growth.

The next resistance level is 16.00 USD. If the price breaks above it, this will likely open up the possibility of a long-term price rise to 34.00 USD. However, it is difficult to imagine this stock price movement without robust financial performance.

Technical analysis of Robinhood Markets Inc*

Expert forecasts for Robinhood Markets stock for 2024

• According to Barchart, three out of 14 analysts rated Robinhood Markets Inc. shares as Strong Buy, eight as Hold, one as Moderate Sell, and two as Strong Sell, with an average price target of 12.27 USD
• Based on the information from MarketBeat, three out of 11 experts designated a Buy rating for the shares, while six gave a Hold recommendation and two assigned a Sell rating, with an average price target of 13.14 USD
• As TipRanks reports, three out of 13 specialists assigned a Buy rating to the financial company’s shares, seven rated it as Hold, and three gave a Sell rating, with an average price target of 13.42 USD
• According to Stock Analysis, one out of 11 analysts rated the stock as Strong Buy, two as Buy, five as Hold, and three as Sell, with the average 12-month stock price forecast of 13.50 USD

Conclusion

In 2023, Robinhood Markets Inc. closed two quarters reporting a net profit, suggesting a trend towards sustained profitability. This positive trajectory may prompt the company to launch share buyback programs or offer dividend payouts in the future.

Moreover, a noteworthy milestone for the corporation in 2023 was its expansion into the international market. It can be assumed that this move may open avenues for expanding the company’s client base and strengthening its financial performance. Consequently, it suggests that Robinhood’s growth potential is yet to be fully realised.

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