Robinhood Stock: With Crypto Down, It Will Be Tough (NASDAQ:HOOD)
Robin Hood (NASDAQ: HOOD) has seen its shares rally from summer lows of $7 per share as investors believe Robinhood’s restructuring plan will be enough to right that ship.
Still, I remain bearish.
I I think the recent downward moves in crypto will further weigh on investors’ appetite to trade on Robinhood’s platform. This is contrary to Robinhood’s recent comment.
As Robinhood’s brokerage clients have fewer crypto trades, this will lead to lower near-term revenue, resulting in no analyst estimates for Robinhood for Q4 2022.
In short, avoid this name.
Robinhood’s August numbers, here’s the good news
For the month of August, Robinhood’s cumulative net deposits increased 26% year-over-year. This coincided with the market’s rally from the summer lows.
As an indicator of retailer interest in stocks, I used ARK (ARKK). As you can see above, from early July to mid-August, ARKK rose 50% in those two months before selling off in late August.
So I think that’s very positive for Robinhood’s third quarter results. And that led to a short-term bounce in HOOD as investors looked to buy that name’s drop.
But I don’t think that’s a lasting value in this recent pop.
I think the recent rise in its share price will come down soon, as investors look beyond the third quarter and into the fourth quarter of 2022.
Robinhood’s fourth quarter results will be weak
As you can see above, in Q4 2020, about two years ago, Robinhood’s revenue from crypto was largely insignificant as a proportion of total revenue.
And when we compare Robinhood’s exposure to crypto in Q4 2021, $48 million of its $264 million in total revenue came from crypto revenue (see slide 24).
Therefore, as the crypto market continues to decline, there is significant risk to Robinhood’s Q4 revenue.
As a result, I think it’s very likely that by the time Robinhood enters Q4 2022 next month, Robinhood’s revenue from crypto will plummet such that Q4 2022 will be less than $30 million. dollars of revenue during the quarter.
So when Robinhood releases its Q4 2022 results in early 2023, investors will be in for a nasty surprise.
HOOD Share valuation – 6x Revenue 2022
Robinhood is still priced at 6x this year’s earnings. Given that this market is becoming more selective about value, I don’t think paying 6x this year’s revenue for Robinhood, a company with such low visibility, is a good investment.
When I look around my various available opportunities, I see countless high quality companies with long leads that are priced 6x.
For example, within cybersecurity or enterprise software companies, many companies have many Fortune 500 companies among their clients. Retail investors facing a cost of living crisis do not.
Moreover, these attractive businesses are growing at a rapid pace and are already profitable or have a clear path to profitability. And they are priced at 6 times the sales!
So why would investors risk paying 6x the sales for Robinhood?
Honestly, I believe this is an investment with a poor risk-reward profile.
Since Robinhood’s IPO, it seems to have had one rough patch after another. As we now enter a “new bear market”, I find it hard to be optimistic about the prospects for this company.
In particular, I focus my bearish investment thesis not so much on Robinhood’s Q3 2022 results, which I believe, as noted above, may positively surprise the investing community, but on Q4 2022 of Robinhood, while I think investors’ appetite for trading crypto on the Robinhood platform could be significantly reduced.
Even though the stock price has fallen so significantly, over 70% since its IPO, I still find little value offered to new investors coming to this stock.