The Federal Reserve’s rate-cut cycle presents both challenges and opportunities for Robinhood Markets HOOD. While lower interest rates will weigh on net interest revenues (NIR), rising retail trading activity and new revenue streams are expected to provide important offsets.
Robinhood’s interest-sensitive earnings have surged recently. The company reported a record $647 million (a 20% increase year over year) in NIR for the first half of 2025, driven by high client cash balances and margin loans. However, every 25-basis-point (bp) cut could trim roughly $40 million in quarterly revenue, as sweep yields and margin rates fall. With the Fed poised to continue easing into 2026, this headwind could intensify, limiting growth from interest income.
At the same time, falling rates typically steer investors away from bonds and toward equities and riskier assets, driving up trading volumes in stocks, options and crypto. For HOOD, where transaction-based revenues remain core, this shift could partially or even fully counterbalance lost NIR. About 59% of the company’s total revenues in the first half of 2025 came from transaction-based activities.
Business diversification further supports Robinhood’s top-line prospects. The company’s push into crypto via its Bitstamp acquisition, rollout of tokenized assets and international expansion broadens its customer and revenue base. Meanwhile, recurring subscription revenues from Robinhood Gold, which offers premium yields and trading tools, continue to scale and provide a more stable earnings stream.
Therefore, Robinhood’s ability to pivot toward a balanced mix of trading, subscriptions and global fintech services will determine how it thrives in a lower-rate environment.
How HOOD’s Peers are Likely to Fare as Fed Lowers Rates?
Two of Robinhood’s close peers are Interactive Brokers IBKR and Charles Schwab SCHW.
Similar to HOOD, lower interest rates will reduce net interest income (NII) for both Interactive Brokers and Schwab, directly impacting their largest revenue streams. At the end of the second quarter of 2025, Interactive Brokers’ management stated that every 25-bp Fed rate cut will reduce annual NII by $73 million.
Meanwhile, Schwab is more sensitive to rate changes as NII accounts for more than 50% its total revenues. Management expects net interest margin expansion as high-cost funding is reduced, but continued rate cuts will compress NII and margins.
Hence, NII will decline for Interactive Brokers and Schwab as rates drop, but their diversification into commission, advisory and transactional revenue streams is likely to help moderate the impact.
Robinhood’s Price Performance, Valuation & Estimate Analysis
Over the past year, shares of HOOD have skyrocketed a whopping 419.9%. In the same time frame, the industry has surged 50.9%.
Image Source: Zacks Investment Research
Given the impressive price performance, HOOD shares are currently trading at a massive premium to the industry. The company has a 12-month trailing price-to-tangible book (P/TB) of 14.77X compared with the industry average of 3.06X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Robinhood’s 2025 and 2026 earnings implies year-over-year growth of 47.7% and 18.2%, respectively. In the past week, earnings estimates for 2025 and 2026 have been revised upward to $1.61 and $1.90, respectively.
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HOOD currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Download Atomic Opportunity: Nuclear Energy's Comeback free today.The Charles Schwab Corporation (SCHW) : Free Stock Analysis Report
Interactive Brokers Group, Inc. (IBKR) : Free Stock Analysis Report
Robinhood Markets, Inc. (HOOD) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
