After 22% 1 Month Dip, What To Expect From Robinhood (NASDAQ: HOOD) Going Into Earnings?

In a striking financial turnaround, Robinhood (NASDAQ: HOOD) has captured the market's attention due to its remarkable surge in trading activity over recent months.

This resurgence through 2024 can be attributable in part to a early year revival in meme stocks as well as a growing interest in the volatile yet attractive world of cryptocurrencies. Despite the fact HOOD stock price has gained almost 40% on a YTD basis, the last month has been quite the opposite, with Robinhood shares declining by 22%.

As you can see from the chart, quite the whipsaw in volatility, but what are markets expecting out of earnings?

EPS is expected to come in at $0.26, up from the previous quarter's beat ($0.24 delivered against expected $0.12). Revenue consensus has HOOD at $642 million on the quarter, up from the $618 million reported previously. So what else has driven the momentum at Robinhood.

The impact of this new wave of trading zeal has far-reaching effects on the company’s financial health. Robinhood has shattered its previous records with equity trading volumes skyrocketing by a whopping 82% in April and 76% in May year-over-year. This has translated into substantial profits for the company and has piqued the interest of Wall Street analysts who predict that Robinhood’s revenue is on track to reach all-time highs in the second quarter.

The lucrative lure of meme stocks, famous for their viral status and volatile trading patterns, has drawn a new crop of traders to Robinhood’s platform. This interest has been augmented by the platform’s commission-free trading model which has made stock market participation more accessible for retail investors. Consequently, the democratisation of trading has fostered a new generation of market participants, eager to engage in trading activities with lower barriers to entry.

Cryptocurrency trading has paralleled this growth with a staggering 238% surge in May and a 173% increase in April over the prior year figures. Amidst the crypto frenzy, cryptocurrencies now represent 41% of Robinhood’s total revenue in the second quarter. The platform has capitalized on this momentum by offering a wide array of digital currencies including major players like Bitcoin, Ethereum, and the internet-beloved Dogecoin.

In a strategic move to sustain and nurture this growth, Robinhood has introduced new features for crypto enthusiasts, such as the ability to set up recurring buys, access advanced trading tools, and benefit from enhanced security measures designed to protect crypto assets.

The surge in activity that was seen in stocks like Gamestop earlier in the year has subsided somewhat over the past month, but whether that is reflected in Robinhood's numbers is another thing entirely. Robinhood’s success story also has a significant chapter on its business model and revenue strategy. Payment for order flow (PFOF), wherein brokers receive compensation for directing orders to different parties for trade execution, remains a significant revenue stream. The heightened activity in both meme stocks and cryptocurrencies has only served to amplify transaction volumes, thus increasing PFOF.

Noting potential headwinds, regulatory scrutiny, the sustainability of current trading levels, and burgeoning competition within the brokerage industry remain significant challenges that Robinhood will have to navigate in its journey ahead.

As Robinhood rides the meme stock and cryptocurrency wave to profitability, the market watches with keen eyes to see if the company can maintain its newfound momentum or if it will need to adapt its strategy to thrive in the ever-evolving financial landscape.