On Thursday, Deutsche Bank updated its outlook on Robinhood Markets (NASDAQ:HOOD) stock, increasing the price target to $20 from the previous $19 while maintaining a Hold rating. The adjustment follows a review of Robinhood's May metrics and discussions with the company's investor relations team.
The bank's analyst noted that Robinhood experienced strong customer growth, as indicated by a 35% annualized growth rate in client assets and a 10% increase in margin balances.
However, a slight decline in cryptocurrency trading volumes led to a reduced transaction revenue forecast for the second quarter compared to initial estimates. This was somewhat balanced by an uptick in options and equities trading revenue, based on positive volume trends observed in the second quarter.
Despite a lowered net interest revenue forecast, the bank's adjusted EBITDA prediction for Robinhood in the second quarter has been set at $270 million, down from the previously anticipated $286 million.
The projected tax rate for the same period has been revised to 5%, a significant decrease from the earlier 20% estimate, due to the anticipated utilization of net operating loss carryforwards for the next few quarters. This tax adjustment has led to an increased earnings per share (EPS) estimate for the second quarter, now at $0.24, up from the former projection of $0.23.
The analyst also commented on the May metrics report, which showed mixed trends across different asset classes. While equities and options saw a rise in volumes compared to April, with equities up by 23% and options by 4%, cryptocurrency volumes fell sharply by 30% from April to May. Across the industry, June's crypto volumes have declined by 15% compared to May, and second quarter volumes are down by 11% from the first quarter.
Robinhood's management believes that the platform's crypto trading prices are competitive, which could lead to revenue capture rates in line with or slightly better than the 35 basis points seen in the first quarter of 2024.
The company is experimenting with price increases for certain customer groups, potentially reaching a capture rate as high as 45 basis points, although the impact of these tests on overall volumes remains uncertain.
In summary, while Deutsche Bank sees positive trends for Robinhood, such as increased equities and options trading volumes, the current valuation is considered fair, warranting the continuation of a Hold rating despite the slight increase in the price target.
In other recent news, Robinhood Markets has shown significant growth in its May metrics, with a $3.6 billion increase in net deposits and a $1.2 billion rise in Gold sweep balances. The company's assets under custody (AUC) increased by 9% from April, reaching $135.0 billion, with 24.1 million funded customers.
Moreover, Robinhood is set to acquire global cryptocurrency exchange Bitstamp, a move expected to facilitate its expansion into international markets and introduce its first institutional business offerings.
Citi has raised its price target for Robinhood from $16 to $18, maintaining a Sell recommendation due to potential risks such as a deceleration in trading activity. On the other hand, Mizuho has maintained its Buy rating on Robinhood's stock, viewing the Bitstamp acquisition as a strategic expansion that could potentially contribute approximately $25-50 million in annual revenues for Robinhood.
Notwithstanding, Cathie Wood's ARK ETFs reported a significant sell-off of Robinhood shares, while increasing their stakes in various biotech and tech companies. This move resulted in a cash inflow of approximately $7,181,906, marking a shift in ARK's investment strategy. These are the latest developments that have influenced Robinhood's business and investment landscape.
InvestingPro Insights
Robinhood Markets (NASDAQ:HOOD) has been a topic of intense investor interest, and recent data from InvestingPro provides a deeper dive into the company's financial health and market performance. With a market capitalization of $19.21 billion and a high P/E ratio of 155.04, Robinhood is trading at a significant earnings multiple. This is further highlighted by an adjusted P/E ratio for the last twelve months as of Q1 2024 standing at 151.27. However, it's worth noting that analysts predict profitability for the company this year, which aligns with the net income growth expectation mentioned in an InvestingPro Tip.
Investors should also be aware of Robinhood's stock price volatility, as the company has seen a high return over the last year with a 118.6% price total return, and a robust 73.22% return over the last six months. This could be indicative of strong investor confidence or market dynamics that favor the company's business model. Another point to consider is that Robinhood does not pay a dividend, which could influence investment decisions for those seeking regular income streams from their investments.
To gain a more comprehensive understanding of Robinhood's potential and to access additional insights, investors can explore more InvestingPro Tips. Currently, there are 9 additional tips available on InvestingPro, which can be found at https://www.investing.com/pro/HOOD. For those interested in a yearly or biyearly Pro and Pro+ subscription, use the coupon code PRONEWS24 to receive an additional 10% off.
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