Can This Trading App Transcend?

This stock's recent gains reflect its product diversification and strategic expansion, though future growth may depend on its competitiveness in the crypto market.

Key Takeaways

• Robinhood’s share price has more than doubled over the past 12 months as underlying performance has improved.

• Alongside product and regional diversification, the cryptocurrency market could be a driver of future gains for Robinhood.

• However, analysts expect slower long-term earnings and revenue growth for Robinhood compared with two of its direct competitors.

1. Robinhood and Retail

Robinhood [HOOD] launched the world’s first commission-free trading and investing platform in 2013. Four years later, it had established itself as the world’s most popular trading app, and by 2020, was starting to diverge significantly from its competition.

As well as investing, options trading and the ability to buy fractional shares, Robinhood offers an increasingly diversified suite of products, including Robinhood Wallet, a self-custody digital wallet for storing and managing cryptocurrencies; Robinhood Gold, a premium subscription tier that offers investors benefits such as 4.5% interest on cash deposits; and a credit card that is available to Gold members.

The Pandemic Peak

Robinhood truly came into its own during the Covid-19 pandemic. On the one hand, the stock market ballooned, thanks partly to share price gains seen by biotechnology stocks and the tech companies providing the software and services that powered business and social life during the stay-at-home era.

Simultaneously, retail investors found themselves with less to do but, crucially, more cash in their pockets. In early 2021, many of them decided to use this free time and money to invest in the ballooning stock market — and Robinhood was one of the favorite ‘neobrokers’ through which they did so.[i]

As of October 15, Robinhood’s share price has gained 110.36% in the year to date. Over the past 12 months, it has gained 193.21%.

However, it is worth zooming out for a longer-term view.

It is notable that Robinhood — having listed in July 2021, when hype for its product was at a peak — has experienced a share price decline over its entire trading lifetime, beginning soon after its public debut.

Additionally, after its early and steep decline in late 2021, Robinhood’s share price has moved in similar directions to the Nasdaq index and the bitcoin price. This might suggest that Robinhood’s performance improves during times when retail investors believe they can realize gains by speculating either on growth equities or cryptocurrencies.

There is, therefore, a degree of cyclicality to Robinhood stock.