This is my opinion based on the numbers and not financial advice.
Robinhood Markets, Inc. is an American financial services company headquartered in Menlo Park, California, that facilitates commission-free trades of stocks, exchange-traded funds and cryptocurrencies via a mobile app introduced in March 2015.
A bit of a different trade to my others, relatively short term in nature for the bulk of this position as this is a proxy trade for $BTC in the run up to the cycle peak.
That said, this is its own company and has some interesting things going on.
For those of you that have been in the market for a while might remember the GAMESTOP drama. Price ran up and they stuck it to the man. Yadda yadda.
This gets interesting when you look how badly sentiment around Hood got hit during that time. You can read more on why here.
Pair this with the insane high Hood was riding with all that cheap pandemic money being parked there and you’ve got an interesting combination about to happen when they finally IPO in July the same year. Throw on top of this the platforms early dependence on crypto trading that dries up when the peak of the cycle is passed. (In one quarter crypto rev fell 78% and users were falling off the platform)
They also had some legal issues relating to order flow and fines for misleading information.
What do you think price is going to do when that money starts to dry up and bad sentiment has crept in? Down she goes. Falling 91% in short order. The bulk of the move happens before rates start to go up. Which really is the nail in the coffin at that point.
🔹 Income statements:
(Good) Revenue is up – Annually (37%), Last period is up 5%.
(Good) Operating income is up – Annually (41%) , Last period is up 25%. Still not profitable but on its way.
(Good) Net income is up – Annually (47%), Last period is up 27%.
🔹 Balance sheet:
(Good) Assets are up – Annually (39%), Last period is up 30%.
(Bad) Liabilities are up – Which we don’t like but long term debt is low.
(Good) Equity is flat.
(Good) Sitting on a nice pile of cash, shrinking but plenty left to go around. Would like to see this move back the other way but given their expansion plans I’m sure this will get nibbled away.
(Good) Shares outstanding is falling.
🔹 Cash flow statement:
(Good) Operating cash flow is positive. Up 194% from last period.
(Good) Capital Expenditure has been trending the right direction slowly but surely.
(Good) Free cash flow is also now positive.
Other things I like:
• Well… Who doesn’t love a turnaround story! The good news is they had a plan to get back on track. • We also know that rates will be coming down which will boost liquidity again AND the $BTC halving has come back around to help push volume. On top of that the business is in a much better financial position and expanding on multiple fronts.
• They have added 5% cash sweeps, joint accounts, level 2 data, gold subscriptions, retirement accounts with up to a 3% match (with a 5-year lock in, very sticky), options/futures trading, desktop trading platform in the works, launching in the EU and the UK, 24-hour trading and X1 credit card acquisition amongst other good stuff.
• Sentiment has slowly but surely started showing signs of picking up and that’s going to be a key driver here. More importantly, the numbers have been improving slowly but surely.
• With all that said, this is not a long-term trade for me, and I’ll be treating it the same as my other BTC proxy trades. I will be mostly out of this by the end of 2024, maybe holding a small legacy position to see how they continue to grow in the fin tech sector. Though I do favour $SOFI in that regard.
BitStamp Acquisition:
Smart move from Hood to gobble this one up. I suspect mainly for their 50 global crypto licenses to speed up regulation hurdles as they expand into Europe etc, possibly using it to gain the ability to custodian for institutional clients . As a bonus treat, they paid $200M to acquire a company with $3B AUC, which means when it completes in 2025, all that cheddar moves to Hoods AUC. Can’t hate that for a free perk! About 28K $BTC worth $1.82B and 293K $ETH worth $1.03B.
Wouldn’t be a shock to see them build a native crypto app using those licence’s to rival Coinbase and offer a much better UI experience, probably rates too. Mainly though, this will be driven at the big institutions. Moving Hood away from it’s retail driven market. Love it.
More Metrics:
Things I don’t like:
• Stock based comp is still very high, but it is trending down a lot.
• Crypto asset exposure is a fraction of what is available on other platforms, though they have added crypto wallets so this may be changing in the future. Would give them a large volume boost.
• The cost to acquire customers is going to eat away the bottom line for a few quarters but… I’m ok with that, given that the benefits in the long term are much more meaningful.
• Operating expenses is still higher than rev, given the booming stock/crypto market though… the next Q could tell a different story.
Guidance:
Guiding for a strong few quarters and perhaps some profitable eps in the coming quarters.
Q4 2023 highlights:
• Funded customers up 420k YoY, 110k MoM.
• Assets under custody up 65% YoY, 19% MoM.
• Net Deposits up $17.1B LTM, 27% up.
• Gold subscribers up 280k YoY, 90k MoM.
• Net profitable quarter.
• $5B in corporate cash and investments
You can check out the rest of the Q4 2023 presentation here.
Institutional buyers:
Love tracking this, really helps identify when momentum is picking up and sentiment is flipping. As we can see, Robinhood has been snapped up by the big boys lately. You can find an up to date version of this here.
The technicals:
What do we love about the charts for this one? It’s been absolutely destroyed and priced for the end of the world. This is one of my favourite strategies for buying stocks. I can’t always be sure of the time frame, but i do know the returns are higher and it suits my personality well.
• Picture perfect price action you want to be seeing for beaten up stocks. Solid basing pattern with huge peak volume shelf.
• Consistently sticks to its measured moves so you can capture short term price movements for trims and adds.
• My first price target is $27 for a small trim at the 2.618 FIB line, very little volume through this area. Then after that $30 to $34 as we approach key psychological numbers below and volume shelf and 3.618 FIB line. (To be noted I’ve already trimmed and added multiple times as price has moved up, these are probably my 6/7th take profit points.)
• RSI been running hot for a while but could still have room to make a pop. Daily bearish divergence developing, worth keeping an eye on that. Weekly RSI very over heated and could use a cool off though.
• Bigger buyers have flushed out retail for most of the month (MACDX), but inflow has slowed. (Banker fund)
Trim and add targets:
My trim targets are marked on the daily chart in yellow (These do move around as price structure develops – To Keep up to date with this please check out my Etoro wall. I regularly post there on my trading plan, or you can ask me for an update.)
New updates:
• New credit card for gold members, Limit is based on income.
• 3% match for any purchase (and 5% for travel) which you can transfer as cash straight to your portfolio.
• Add cards for any age (minors included) and it builds their credit (From sharing the cards history i assume) as you monitor and give them a spending limit.
• Virtual cards for sites you don’t trust or anonymous purchasing.
Slightly concerned with the level of risk here regarding delinquencies given that they want to give a card to anyone who applies but we will have to see what the numbers tell us. Has the potential to be a game changer. They have partnered with $V (Visa) on this so could be a good guiding hand for them in this new area.
We also have the new app. Very customizable for your specific needs.
Last but not least, gold match. Very impressed with this one.
Every deposit you make is matched with 1%!
One thing is clear… Hood is pulling out all the stops to get customers and lock them in.
Very excited for the next earnings, unlikely returns will be seen yet from these rollouts but the changes over the last few months should be showing some big jumps in numbers again for customers and deposits.
Can certainly bet gold subscriptions and cash sweeps will be rising.
First Quarter 2024 Robinhood Update – Follow this link
Latest News Update – Follow this link
Conclusion:
Price action has already had a big move for me on this one, but I believe there’s still more gas in the tank since metrics have only recently started going the way I wanted them to. My original plan was just to hold this back to a nice median during the crypto cycle BUT they have been absolutely smashing it with the products they are bringing to market. It’s for this reason I am not ruling out holding a portion of this position for longer but that will depend on how they execute over the coming quarters. If we get a huge pumping stock/crypto market the stock price is going to rocket, honestly if that happens, I’m probably mostly out.
This thesis is up to date as of 29/03/2024
Just a reminder this is my opinion not financial advice, please make sure to do your own research.
