Robinhood (HOOD) earnings writeup
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My investment portfolio is up +220.8% in 2024, after being up +134.7% in 2023; now up more than 3,000% since January 2020 when I got back into investing full-time.
Here’s my investment strategy which focuses on high-quality growth stocks… I own 15-20 core holdings (great fundamentals, compelling valuation) plus another 5-10 non-core holdings (good fundamentals, reasonable valuation) plus another 5-10 swing trades (good fundamentals, reasonable valuation, compelling technicals).
As long as the fundamentals remain strong and valuation remains compelling/reasonable, then I’ll add on pullbacks.
I only want to own stocks that have at least 50% upside within the next 1-2 years and at least 100% upside within the next 3-4 years.
My objective is to maximize the upside in good markets and minimize the downside in bad markets. I accomplish this by being very selective with my stock picking and disciplined on valuations while using a variety of hedging strategies to protect my gains in market downturns.
Here’s my most recent webinar with Trendspider, don’t forget to signup and use my discount link for 50-65% off their annual plans… trendspider.cc/luptoncapital
HOOD Q2 earnings report: https://s28.q4cdn.com/948876185/files/doc_financials/2024/q2/Q2-2024-Robinhood-Exhibit-99-1.pdf
HOOD Q2 earnings webcast: https://edge.media-server.com/mmc/p/o598bpu6/
HOOD Q2 earnings webcast transcript: https://s28.q4cdn.com/948876185/files/doc_financials/2024/q2/Robinhood-Markets-Inc-Q2-2024-Earnings-Call-Transcript.pdf
HOOD Q2 earnings presentation: https://s28.q4cdn.com/948876185/files/doc_financials/2024/q2/Q2-2024-Earnings-Presentation.pdf
Overview
Robinhood single handedly changed the trading industry by introducing no-commission trading back in 2014. Its modern and user-friendly interface, along with its gamified elements, made its mobile app super popular among a new wave of enthusiastic young investors and traders interested in participating in the stock market.
Though involved in a number of controversies… from selling customer trades (aka order flow) to some of the biggest market makers, to the GameStop short squeeze, which caused Robinhood to temporarily restrict trading of its securities and seeing its stock plummet almost 80% since its all-time high, Robinhood has been firing on all cylinders in the past couple years, transforming from just a brokerage service to more of a one-stop-shop investing and finance app.
Robinhood launched a retirement account where the company matches the contributions up to 3%, boosted savings APY to 5%, and introduced the Robinhood Gold Card with 3% cash back.
Adding these new offerings has helped Robinhood diversify its revenue streams and find new ways to grow AUC (assets under custody).
Robinhood now has 8 businesses with an annualized revenue run rate of over $100 million, including the new Gold program.
With all of its innovation and rollout of new products, Robinhood should be well-positioned for continued success with the the DIY (do-it-yourself) Gen-Y (born 1981-1996) and Gen-Z (born 1997-2012) age groups.
Generally speaking, I believe the majority of DIY people over 40+ years old are using Charles Schwab, Fidelity, Vanguard, eTrade and then of course the people that prefer working with Financial Advisors or Wealth Managers are using Morgan Stanley, Merrill Lynch, JP Morgan, Goldman Sachs, Stifel, Edward Jones and so on.
Lots of options out there however Robinhood has done a nice job of capturing the younger, less experienced investor or trader. These people also have way less money to manage. Whereas the average account size at Charles Schwab is approximately $200,000 — the average account size at Robinhood is only $5,000
However, despite the smaller sized accounts, Robinhood does have 24.2 million funded accounts which should be a huge opportunity over the next 3-5 years as their customers start to progress in their careers and contribute more money to their investment accounts.
I thought HOOD put up some great Q2 numbers which kept me bullish however the July operating numbers got me even more bullish and helped reinforce my long-term investment thesis.
For the month of July, funded accounts only grew 4% YoY however AUC grew 53% and trading volumes were up 51% YoY [click here for all the data]
My investment thesis for the next ~5 years is pretty simple… I think HOOD can get to 30 million funded accounts (4.4% CAGR) with the average account size doubling from $5,000 to $10,000 (14.8% CAGR).
This scenario would increase AUC from $140 billion to $300 billion, assuming they can increase revenues from 1.8% of AUC to 2.0% of AUC with all the new services being introduced (this is probably conservative)… revenues in 5 years would be approx $6 billion which is an 18.2% CAGR
If my investment thesis is correct then HOOD’s valuation is very reasonable at 20x NTM earnings assuming revenues are growing at an 18% CAGR with earnings growing at a 20-25% CAGR based on margin expansion and stock buybacks.
