Over the last year, Robinhood’s (HOOD) shares have skyrocketed by more than 350%. This surge can be attributed to a combination of surging stock markets and increasing cryptocurrency prices, which enticed numerous individual investors to return to their online trading platform, leading to an increase in trading volumes.
Potential investors may hesitate to put money into Robinhood following such substantial profits. Nevertheless, there are six compelling reasons to consider purchasing shares prior to their upcoming earnings release on July 30th.
1. It’s expanding rapidly
Between 2020 and 2024, Robinhood significantly increased its customer base that receives funding, with an impressive tripling of assets under management (AUM). This expansion was achieved even during a challenging economic period in 2022, where sluggish growth was seen due to the cooling of the stock and cryptocurrency markets as interest rates climbed. Remarkably, its revenue surged at a strong compound annual growth rate (CAGR) of approximately 32.5%.
| Metric | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|
| Funded customers | 12.5 million | 22.7 million | 23.0 million | 23.4 million | 25.2 million |
| AUC | $63 billion | $98 billion | $62 billion | $103 billion | $193 billion |
| Revenue growth | 245% | 89% | (25%) | 37% | 58% |
In Q1 of 2025, Robinhood witnessed a 8% annual increase in the number of funded clients, bringing their total to approximately 25.8 million. A significant leap was observed in their overall platform assets, which is a fresh metric that includes both their Assets Under Custody (AUC) and those acquired following their November purchase of TradePMR, jumping by an impressive 70% to reach $221 billion.
If the Federal Reserve reduces interest rates once more in 2021, it might be wise for more investors to shift their focus towards stocks, options, and cryptocurrencies. This transition could stimulate a short-term growth spurt.
2. Fewer regulatory challenges
Robinhood gained popularity among individual investors due to its feature of commission-free trading. This is possible since they group all their orders together and then sell these bulk orders to fast-trading firms, who are able to extract tiny profits from such large transactions.
The “payment for order flow” (PFOF) model faced significant examination by the Securities and Exchange Commission (SEC) during Gary Gensler’s tenure as Chairman, from 2021 to 2025. Some financial investors even suggested that the SEC might outright prohibit PFOF trades, potentially threatening Robinhood’s primary operations.
However, the ban didn’t materialize, and Paul Atkins, Gensler’s successor at the SEC, has withdrawn all proposed restrictions on Payment for Order Flow (PFOF) trades. With the fading regulatory obstacles, Robinhood can anticipate a smoother route for broadening its commission-free trading platform.
3. It’s gaining more subscriptions
Over nine years ago, I jumped aboard the Robinhood Gold bandwagon, paying just $5 a month or $50 yearly. This subscription unlocks some amazing benefits for me! With it, I enjoy an interest-free margin of up to $1,000, reduced margin rates, increased interest on my uninvested cash, bonuses on taxable deposits and IRA contributions, higher instant deposit limits, access to advanced Level II trading data, and a whole lot more! It’s been a fantastic journey so far, and I can’t wait to see what else Robinhood has in store for me as a Gold member.
During the first quarter of 2025, the number of Gold subscribers increased by 90% compared to the same period in the previous year, reaching a total of 3.2 million. Additionally, subscription income surged by 65% to reach $38 million. Although this represented just 4% of Robinhood’s overall earnings, it has potential for gradual expansion, possibly helping to diversify its business and lessen the impact of its more fluctuating transaction-based revenues.
4. Robinhood’s ecosystem is expanding
Over the last several years, I’ve been thrilled to witness Robinhood’s growth as they’ve broadened their platform. They’ve introduced crypto trading, options trading, and even card-based banking services! Additionally, they’ve unveiled AI-enhanced portfolio management tools and enabled trading of “tokenized” assets (blockchain representations of traditional investments like U.S. Treasuries, stocks, and ETFs). It’s been an exciting journey!
Robinhood has incorporated private companies such as OpenAI and SpaceX into its tokenization approach more recently. However, the tokens do not offer investors ownership in these start-ups directly; instead, they are linked to a “special purpose vehicle” that owns the private shares. This setup provides investors with some indirect exposure to these companies before their potential initial public offerings (IPOs).
5. Its margins are improving
Between the years 2020 to 2024, Robinhood’s gross profit ratio increased from 88% to 94.4%, while its adjusted EBITDA margin, which dipped into negative territory in 2021 and 2022, surged from 2.3% to a substantial 48.4%.
| Metric | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|
| Gross margin | 88% | 91.3% | 86.8% | 92.2% | 94.4% |
| Adjusted EBITDA margin | 2.3% | (89%) | (6.9%) | 28.7% | 48.4% |
The growth was mainly due to a decrease in expenses related to stock-based compensation (which significantly impacted its shrinking margins in 2021), an increase in revenue from high-yield subscription services, and higher earnings from interest on cash sweep and margin lending programs. Additionally, it earned more from its higher-margin crypto and options trades compared to equity trades as economies of scale became more prominent.
6. The valuation is reasonable relative to its growth
Between the years 2024 and 2027, analyst predictions suggest that Robinhood’s revenue will increase at a Compound Annual Growth Rate (CAGR) of approximately 18%. Furthermore, it is projected that its Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) will expand at a CAGR of 23%. While these forecasts should be viewed with some skepticism, Robinhood may continue to attract investors away from conventional brokerages due to its zero-fee trades, innovative investment experience, and broadening offering of financial technology services.
Considering Robinhood has an enterprise value of approximately $91.3 billion, its stock price appearing expensive at around 50 times this year’s adjusted EBITDA might be an understatement. However, if you anticipate the ongoing bull market to boost its business significantly, it could be wise to invest in some shares before the next earnings announcement.
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2025-07-20 16:31