To The Moon

$Robinhood(HOOD)$

Robinhood delivered outstanding results last week, with strong momentum across the business. Strategically, I assess Robinhood beyond just revenue or net income figures—I focus on key indicators such as the number of Gold members, the total assets flowing onto the platform, and the average asset value per customer. These metrics are all trending in the right direction.

I'll break down the results and share my key takeaways, which may differ from the broader market's interpretation. However, I want to highlight valuation—Robinhood's stock is becoming increasingly expensive. A pullback wouldn’t be surprising, especially if the market declines or the company faces any setbacks in the coming quarters. That said, we haven’t seen any negative signals yet.

Earning Overview

Robinhood Markets, Inc. (NASDAQ: HOOD) reported robust financial results for the fourth quarter and full year of 2024, marking significant milestones in the company's growth trajectory.

Fourth Quarter 2024 Highlights:

• Revenue Growth: Total net revenues reached a record $1.01 billion, a 115% increase compared to the same period last year.

• Transaction-Based Revenue: This segment saw a remarkable surge, growing over 200% year-over-year to $672 million. The growth was primarily driven by:

• Cryptocurrency Trading: Revenue soared over 700% to $358 million, as Bitcoin approached the $100,000 mark

• Options Trading: Revenue increased by 83% to $222 million.

• Equities Trading: Revenue rose by 144% to $61 million.

Net Income: The company reported net income of $916 million, or diluted earnings per share (EPS) of $1.01, a tenfold increase from $30 million, or $0.03 per share, in Q4 2023. This includes a $369 million deferred tax benefit and a $55 million benefit from the reversal of a regulatory settlement accrual. Assets Under Custody (AUC): AUC grew by 88% year-over-year, reaching $193 billion. Gold Subscribers: The premium service attracted 2.6 million subscribers, an 86% increase from the previous year.

Key Financial Highlights:

Management provided a high-level overview, starting with crucial numbers. Funded customer growth has been relatively slow, and I’d like to see it accelerate in 2025. However, Robinhood’s business remains highly sticky, meaning customer attrition is low. The question is whether they can attract new customers at a faster rate than 1.8 million per year.

Despite this, Robinhood experienced solid growth in Q4:

• 850,000 new customers added sequentially

• Assets under custody up 88% YoY, driven by strong stock and crypto performance

• $50 billion in net deposits over the past 12 months

A key metric I focus on is Gold subscribers, as this differentiates Robinhood from other brokerages. Much like Costco's membership model, Robinhood generates significant value from its Gold subscribers. The company provides offerings such as a 3% IRA match, 3% back on the Gold credit card, premium data and research, and better margin rates, which may not be immediately profitable but create long-term customer loyalty. With 2.64 million customers paying $50 annually for Gold membership, this model has substantial potential.

Fundamental Analysis

• Revenue exceeded $1 billion, up 115% YoY

• Operating expenses rose just 18%, demonstrating strong operating leverage

• Adjusted EBITDA surged 161% YoY

• Net income reached $886 million, even after adjusting for a $424 million tax benefit

This performance underscores Robinhood’s unique business model and its ability to scale efficiently. Looking ahead, product innovation and market expansion will play a crucial role in sustaining long-term growth. With a decade-long product roadmap in place, Robinhood is well-positioned to expand its market reach in 2025 and beyond.

Robinhood continues to expand its platform in multiple ways, including new product offerings and geographic growth. In 2024, the company introduced Bitcoin ETFs, index options, and Robinhood Legend while also adding more crypto-related products. Looking ahead to 2025, the roadmap follows a similar trajectory, focusing on greater wallet share from the next generation of investors.

Some key areas of expansion include:

• Gold Card Growth – Currently at 100,000 users, with room for significant growth

• Legend Futures & Event Contracts – Further expanding investment opportunities

• Crypto & Tokenization – Potential long-term drivers for both Robinhood and the broader market

Expanding the platform beyond a single, great product is crucial. While Robinhood initially gained traction with its simple brokerage model, broadening its services to meet a variety of financial needs is how it will scale into a much larger, more impactful business. This strategy has the potential to 10x Robinhood’s size over time.

Free Cash Flow

As of the fourth quarter of 2024, Robinhood reported a net income of $916 million, a significant increase from the previous year. Adjusted EBITDA for the same period was $613 million. While these figures indicate strong profitability, specific free cash flow (FCF) data for Q4 2024.

Business Maturation & Long-Term Growth

Another major development is Robinhood’s push into retirement assets. Over the past year:

• The number of retirement accounts has doubled

• Retirement assets under custody have increased 7x

This signals a shift toward long-term, stable asset growth, attracting higher-net-worth individuals and reinforcing Robinhood’s evolution into a mature financial institution.

Stock vs. Business: A Valuation Perspective

While the business fundamentals remain strong, Robinhood’s stock valuation is steep:

• Revenue: $2.95 billion over the past 12 months

• Price-to-sales ratio: ~20x

• Trailing P/E ratio: Over 40

This means the stock is priced for perfection, leaving little room for missteps. While I remain confident in the long-term potential and am not selling my shares, I’m also not buying at current levels. Any market pullback or operational hiccup could present better buying opportunities in the future.

In summary, Robinhood’s business is thriving, particularly with the growth of Gold memberships and its unique economics compared to competitors. However, the stock’s recent rally has made it more expensive, so I’ll be watching for a more attractive entry point.

What do you think about Robinhood’s results and valuation? Is it too pricey, or are you buying?

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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