With the macroeconomic stability the US has been witnessing lately, more investors have been returning to the stock market and crypto trading. One of the companies benefitting from this return is leading trading platform Robinhood Markets, Inc. (NASDAQ: HOOD) which is up nearly 32% YTD. With this in mind, HOOD could have more room to grow this year as the company’s crypto trading platform might be gaining market share from crypto trading giant Coinbase Global, Inc. (NASDAQ: COIN) according to analysts. Given the company’s plans to close an acquisition this quarter and its impressive performance so far this year, the HOOD stock forecast appears to be brighter than ever.
HOOD Stock News
Adding New Products
Despite being impacted by the bear market in 2022, HOOD has been constantly working to improve its offerings as it continues to introduce new services. Last year, HOOD extended its equities trading hours as part of its long-term goal of providing 24-hour trading. In this way, HOOD could attract additional users this year as more investors could be interested in increasing their trades to capitalize on the current stock market growth. Moreover, HOOD launched Robinhood Retirement last December as the first and only IRA with a built-in match and no employer necessary. Based on this, HOOD could be poised to attract a large number of new users and an even wider pool of assets. Given the company’s constant innovation, the HOOD stock forecast could be bright for the future as markets rebound.
In addition to expanding its equities trading offerings, HOOD introduced additional services to allow its customers to gain passive income during the inflationary macro-environment. One of these services is its stock lending program which was launched in May 2022. This program allows HOOD’s customers to generate income by lending the stocks they’re holding. With this in mind, this program has shown significant growth potential as it reached nearly $15 million of annualized revenues in Q3 – with this number rising to $30 million by the end of January. Based on this promising growth, HOOD is actively working to improve this product to improve onboarding by making more equities available to lend and migrating to a new collateral agent.
At the same time, HOOD launched a revamped Robinhood Gold service offering its customers an industry-leading 4.15% interest rate during an inflationary macro-environment. Since the company is providing its customers with access to one of the easiest opportunities to earn yield in the US, Robinhood Gold subscribers increased in Q4 for the first time in more than a year. Moreover, Gold cash sweep balances grew to $6 billion at the end of January – highlighting the success of this launch. In light of the company’s impressive services, the HOOD stock forecast could be bullish for 2023.
Venturing Into Crypto
Although HOOD is known for its equities trading platform, the company expanded into the crypto space with the launch of its global crypto platform – the non-custodial Robinhood Wallet. Considering cryptocurrencies’ dip in 2022 following the rising interest rates, this product has not provided HOOD with the expected returns. However, the Robinhood Wallet could be on track to deliver significant revenues for the company this year thanks to the rebound cryptocurrencies’ are witnessing. With cryptocurrencies more appealing to investors in the meantime, the HOOD stock price prediction could show a significant upside as the crypto sector continues to witness high volume.
Global Expansion
While many companies are pulling back from new investments due to the macro uncertainty, HOOD plans to aggressively pursue additional long-term growth opportunities. With this in mind, HOOD intends to expand its services’ reach globally by introducing brokerage services in the UK by the end of 2023. In this way, HOOD could be on track to significantly grow its assets under custody and revenues as its services gain popularity in the UK market. Given the company’s constant efforts to grow its business, the HOOD stock forecast appears to be bright in 2023 and beyond.
Share Buyback & SBC Cancellation
Meanwhile, HOOD is seeking to add value to its shareholders as the company’s BOD recently approved a buyback of the 55 million shares purchased by Sam Bankman-Fried – founder of now-bankrupt crypto exchange FTX. These shares are owned by Emergent Fidelity Technologies – a holding company Bankman-Fried used to purchase these shares – which has recently filed for bankruptcy. On that note, there is an ongoing fight regarding the control of these shares between FTX’s debtors and BlockFi – a crypto lender that announced bankruptcy following FTX’s collapse. With these shares under the custody of the Justice Department, HOOD is in talks with the DOJ to buy back these shares. If the company successfully purchases these shares back, HOOD stock could soar given the scale of this share buyback.
Moreover, HOOD’s founders decided to cancel nearly $500 million of their combined share-based compensation. As a result, HOOD’s operating costs are expected to decline by up to $50 million per quarter starting in Q2 while also reducing HOOD’s fully diluted share count by 3.5%. Based on these cost savings, the company could be on the right track to reach profitability – making the HOOD stock forecast bright for 2023.
Risks
Despite HOOD’s growth potential and promising catalysts, the company has some risks that investors should note before investing. While HOOD is a leading brokerage among retail investors, the company has been constantly reporting declining Monthly Average Users (MAUs). In December, HOOD reported 11.4 million in MAUs compared to 12.5 million in November. On a YOY basis, this decline is significantly steeper as MAUs decreased from 17.4 million in December 2021. As a result of this decline in MAUs, assets under custody fell to $62 billion – declining 11% MOM and 37% YOY. However, the current market rebound could help boost MAUs and AUC as more investors are interested in trading.
Another risk HOOD faces is the SEC potentially limiting payment for order flow. On that note, payment for order flow is a key part of HOOD’s business model since it allows the brokerage to offer free trades to retail investors. Through payment for order flow, HOOD generates most of its revenues since it sells the stock orders it receives to market makers in exchange for a fee for directing the order flow their way. However, the SEC is proposing that instead of order flow being sent to a single market maker of choice, orders would be sent to auctions where a market maker offering the best price for a trade would win the bid. As a result, demand for order flow could take a significant hit if market makers determine it is no longer profitable for their business.
Another SEC proposal includes codifying brokers’ responsibility to get their customers the best possible price on trades. In this way, brokers would have to search extensively before selling order flows which could significantly impact brokers’ operating costs. Since the bulk of HOOD’s revenues is dependent on payment for order flow, the stock could drop if payment for order flow is limited by the SEC.
Since the SEC’s proposals would limit the company’s ability to generate revenues, HOOD has been working to diversify its revenue sources to limit the impact of these proposals. In 2022, transaction-based revenue – which includes payment for order flow revenue – represented 60% of HOOD’s total revenues compared to 77% in 2021. With the company improving its options trading offering and expanding into the crypto trading sphere, the HOOD stock forecast could be promising even if the SEC limits payment for order flow.
*Updated July 5th, 2023.
Gaining Market Share
With the Securities and Exchange Commission (SEC) suing Coinbase for trading unregistered securities, analysts believe that HOOD has been gaining share over Coinbase over the past few months. The reason analysts share that belief is that Coinbase should have realized $117 million in revenues in April according to the current fee Coinbase collects, but in reality, it only realized $110 million.
On that note, Coinbase increased its fee from 1.33% in Q3 2022 to 1.68% at the moment and this increase may be a pivotal reason for customers turning away from Coinbase to HOOD which offers commission-free crypto trading. In this way, HOOD has the potential to increase its crypto trading platform’s market share substantially.
New Acquisition & Cost Cuts
HOOD is also planning to increase the range of financial services it is offering to its customers and add it to its existing cash card product with the planned acquisition of X1 for $95 million in cash, with the transaction expected to close this quarter. X1 is a credit card company that offers instant reward points and does not rely on credit scores for approvals; instead, income is used to determine whether or not an application is approved and the credit limit for the cardholder.
The X1 acquisition is certainly on brand for HOOD since the X1 card has no annual fee, no foreign transaction fees, and no late fees, which is something ingrained in the core identity of HOOD. Furthermore, the acquisition will provide a new revenue stream for HOOD and will offer an opportunity to implement X1 in its brokerage platform especially since X1 was planning to give its cardholders the ability to buy stocks by using earned reward points.
Around the same time HOOD announced its plan to acquire X1, HOOD laid off 7% of its staff to lower its costs, since HOOD has trimmed its guidance for 2023 GAAP total operating expenses to $2.345B-$2.485B from the previous guidance of $2.375B-$2.515B. In this way, HOOD might return to profitability especially with the growing interest in stock and crypto trading due to the improving macroeconomic outlook.
Breaking Out Of A Pattern
On the daily chart, HOOD stock successfully broke out of a falling wedge pattern and confirmed the break with a retest of the wedge’s trendline. With the stock forming higher highs, HOOD could witness an upward trend from current levels which is supported by the platform’s successes this year. For this reason, the HOOD stock forecast could be extremely bullish this year.
HOOD Stock Financials
2022 Annual Report
Looking into HOOD’s 2022 financials, the company grew its assets YOY to $23.3 billion from $19.7 billion. This increase is mainly attributed to $8.4 billion reported as assets related to user cryptocurrencies safeguarding obligations. HOOD’s cash balance also increased slightly from $6.2 billion to $6.3 billion. As for liabilities, HOOD reported $16.3 billion – increasing from $12.4 billion a year ago. However, $8.4 billion of HOOD’s liabilities are related to user cryptocurrencies safeguarding obligations.
In terms of revenues, HOOD reported $380 million in Q4 – representing a 5% YOY increase from $363 million. However, on a full-year basis, HOOD’s revenues declined 25% from $1.8 billion in 2021 to $1.3 billion. Meanwhile, HOOD successfully reduced its operating costs in 2022 to $2.3 billion compared to $3.4 billion a year ago. In this way, HOOD’s net loss declined from $3.6 billion to $1 billion in 2022. Given the company’s significant cost reductions, HOOD could be on the right track to profitability as it continues to expand its services and reduce its costs.
While HOOD’s financials could be underwhelming for many investors, it is worth noting that the company lost $57 million due to a processing error. This error caused HOOD to sell shares of Cosmos Health Inc. (NASDAQ: COSM) short into the market following COSM’s 1-for-25 reverse split. Despite detecting this error quickly, HOOD still lost a substantial amount of cash as it bought back these shares against a rapidly rising stock price.
Q1 2023 Earnings
n its Q1 2023 report, HOOD’s assets increased 20% QoQ from $23 billion to $27.7 billion, while its cash and cash equivalents decreased 14% QoQ from $6.3 billion to $5.4 billion. HOOD’s total liabilities increased by 27% QoQ from $16.3 billion to $20.7 billion.
Revenue also increased 47% YoY from $299 million to $441 million. Operating costs increased almost 37% from $690 million to $950 million, which contributed to the operating loss increase of 30% YoY from $391 million to $509 million. As a result, HOOD’s net loss increased 30% YoY to $511 million.
Media Sentiment
@JesseLeeDow1 is bullish on the HOOD stock forecast this week.
@OptionsJohnny believes HOOD stock may reach $19.09 breaking out of the falling wedge.
Technical Analysis
HOOD stock’s trend is neutral with the stock trading in a sideways channel between $8.33 and $10.15 which it has broken recently. Looking at the indicators, the stock is trading above the 200, 50, and 21 MAs which are bullish indications. Meanwhile, the RSI is overbought at 74 and the MACD is bullish.
As for the fundamentals, HOOD has an upcoming catalyst in the closing of the X1 acquisition this quarter. Moreover, HOOD is expected to post its Q2 earnings on August 23 which are critical to confirm whether HOOD has been gaining market share from Coinbase or not.
HOOD Stock Forecast
HOOD is currently seeing a lot of interest, with speculations of it gaining market share over its competitor in the crypto trading space Coinbase. Given HOOD’s efforts to cut its expenses with the last round of layoffs, the platform is actively improving its long-term profitability prospects which would be a major achievement for the company. Meanwhile, HOOD is actively trying to broaden its product offering by venturing into the credit card space with the planned acquisition of X1 which is set to be closed this quarter. For these reasons, the HOOD stock forecast appears to be bright this year.
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