On Thursday, Citi updated its stance on Robinhood Markets (NASDAQ:HOOD) shares, raising the price target to $18 from $16, while still recommending a Sell on the stock.
The adjustment follows the release of Robinhood's May metrics, which indicated robust net deposits and growth in Gold sweep balances due to ongoing customer incentive payments. The trading platform saw a $3.6 billion increase in net deposits and a $1.2 billion rise in Gold sweep balances for the month.
Despite the price target increase, the Sell rating was maintained due to concerns over potential risks, including a deceleration in trading activity. Citi's revision also takes into account a 10% sequential rise in margin balances to $4.5 billion, attributed to recent cuts in margin rates. However, these rate reductions are expected to result in lower yields from margins in the future.
The report also highlighted sustained strong trading, especially in equities and options. Although cryptocurrency trading has weakened from its recent highs, the overall performance in May was solid. Citi's revised outlook incorporates these improving fundamentals but also notes that the current valuation of Robinhood's stock might be too high, even after factoring in the latest positive trends.
Citi's new price target reflects a more optimistic view of Robinhood's near-term financial prospects based on May's data. Yet, the firm advises caution, suggesting that while the immediate indicators are positive, there are underlying risks that could affect the stock's performance going forward. Citi's analysis indicates that while the company's fundamentals are improving, the stock's market price may not fully align with these changes.
In other recent news, Robinhood Markets has reported significant growth in its May 2024 operating data, including a rise in funded customers and assets under custody (AUC). The company's AUC increased by 9% from April 2024, reaching $135.0 billion, while the number of funded customers rose to 24.1 million. Robinhood also reported a 35% annualized growth rate in net deposits for May, amounting to $3.6 billion relative to April's AUC.
In a strategic move, Robinhood is set to acquire global cryptocurrency exchange Bitstamp, a deal expected to close in the first half of 2025. The acquisition, valued at approximately $200 million in cash, is anticipated to facilitate Robinhood's expansion into international markets and introduce its first institutional business offerings.
In response to this development, Mizuho maintained its Buy rating on Robinhood's stock, viewing the acquisition as a strategic expansion that could potentially contribute approximately $25-50 million in annual revenues for Robinhood.
Meanwhile, 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 some of the recent developments that have influenced Robinhood's business and investment landscape.
InvestingPro Insights
Robinhood Markets (NASDAQ:HOOD) has caught the attention of investors and analysts alike with its recent financial performance. According to InvestingPro data, Robinhood boasts a significant market capitalization of $20.83 billion, underlining its substantial presence in the trading platform industry. The company's revenue growth is particularly notable, with a 36.13% increase over the last twelve months as of Q1 2024, and a quarterly revenue growth of 40.14% in Q1 2024, reflecting robust business expansion.
InvestingPro Tips suggest that Robinhood's net income is expected to grow this year, which may be a key factor for investors considering the stock. Additionally, three analysts have revised their earnings upwards for the upcoming period, hinting at a potential positive shift in the company's financial trajectory. These insights could be vital for investors evaluating the company's future earnings potential.
Despite the positive revenue trends, Robinhood is trading at a high P/E ratio of 168.88, which could indicate that the stock is priced at a premium relative to near-term earnings growth. This aligns with Citi's concern about the current valuation of Robinhood's stock. Moreover, the company's strong return over the last year, with a 146.88% price total return, may attract those looking for growth in their portfolio.
For those interested in deeper analysis and more InvestingPro Tips, including a comprehensive fair value assessment, visit https://www.investing.com/pro/HOOD. There are 12 additional tips listed in InvestingPro that can provide further insights. To access these valuable resources, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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