Cryptocurrency's Value Increases by 30% in 2024, Potentially Continuing Its Ascent
I've had my fair share of criticism towards Robinhood Markets (HOOD -2.67%) over the past couple of years, given its stock's drastic fall of 91% from its all-time high. The company was consistently losing active users, and its transaction revenue seemed to be in a perpetual downward spiral as a result.
However, Robinhood's situation has drastically changed in 2024. The rising stock market has drawn users back in, and they're actively trading, boosting the company's revenue.
The most thriving sector of Robinhood at the moment is cryptocurrency. The revenue in this segment grew over three times compared to the previous year during the first quarter of 2024 (ended March 31). Robinhood's stock has climbed 30% in 2024 so far, but there's a strong possibility it could climb higher.
Robinhood's key metric has seen an uptick
Robinhood's monthly active users (MAU) hit a high of 21.3 million during the second quarter of 2021. Since then, MAU declines were reported in almost every subsequent quarter, hitting a low of 10.3 million towards the end of 2023. This was a major reason behind my bearish outlook on the company's prospects. Generating sustainable revenue growth will be challenging if the user base continues to shrink.
However, Robinhood's MAU has rebounded since that low point, currently sitting at 13.7 million. The company also reported a record-breaking 23.9 million total funded customer accounts at the end of Q1, and the assets held within these accounts jumped 65% year over year to $130 billion.
The increase in account value is attributed to the growth in stock and cryptocurrency prices. Major stock indexes and leading cryptocurrency Bitcoin both reached new highs in 2024.
Robinhood's customers also invested $11.2 billion in new funds during the quarter. The platform generates fees through the practice of 'payment for order flow' – routing customer orders to third-party market makers for fulfillment. Sending larger orders earns Robinhood higher fees, making 'assets under custody' a significant indicator of the platform's potential revenue earnings.
Robinhood's revenue surged during Q1
Robinhood recorded a record $618 million in revenue during Q1, up 40% from the previous year. However, the real story lies beneath the headline number.
Transaction revenue increased by 59% to $329 million, primarily driven by the platform's brokerage operations. All asset classes – equity, options, and crypto – contributed positively, with crypto showing the strongest growth, soaring by 232%.
Robinhood's revenue was previously driven more by interest income due to the $4.7 billion in cash and equivalents on its balance sheet and $4.5 billion held on behalf of customers. However, the rapid rise in interest rates in recent years increased the earnings from these funds.
Robinhood also earns interest from its credit card product and margin lending activities. The company reported a total interest revenue of $254 million during Q1, marking a 22% increase year over year. With expected interest rate cuts from the U.S. Federal Reserve, the growth in Robinhood's transaction revenue becomes even more significant.
Robinhood's operating costs dropped by 52% during Q1, and with revenue growing so quickly, the company reported $157 million in GAAP (generally accepted accounting principles) net income – a significant turnaround from the $511 million net loss in the previous year.
Most of the decline in operating costs was due to the cancellation of Robinhood's founders award, which reduced stock-based compensation expenses by $536 million during Q1.
Why Robinhood stock could surge further
To its credit, Robinhood didn't let its plummeting stock price deter it in the post-2021 period. The company continued to innovate and expand its product portfolio, and these initiatives are starting to show positive results.
For instance, it launched a retirement offering in January 2023, and it has already amassed over 650,000 customers. During Q1, the assets under custody for the retirement segment grew 14-fold from its launch a year earlier. With a significant portion of Robinhood's customer base being first-time investors with long-term retirement goals, this could prove an important revenue source.
Robinhood currently has a valuation of almost $15 billion. Based on its trailing 12-month revenue of $2 billion, its stock trades at a P/S ratio (price to sales) of around 7.6. Although this is lower than its peak set during 2021 due to the company's revenue growth and stock price decrease, its recent positive financial performance warrants an increase in the stock's P/S ratio.
Therefore, there could be potential for further growth in Robinhood investor returns.
Given Robinhood's recent financial turnaround, individuals considering investing in the company might find interest in its improved financial metrics. The platform's revenue surge during Q1, reaching $618 million, marked a 40% increase from the previous year, driven primarily by a 59% increase in transaction revenue.
In light of this impressive revenue growth and the company's innovative initiatives, such as its retirement offering launch, potential investors might be keen on investing their money in Robinhood, seeing it as a promising opportunity for financial gain.
