Robinhood Markets HOOD is slated to announce third-quarter 2024 results on Oct 30, after market close.
One of the HOOD’s peers, Tradeweb Markets Inc. TW, is also scheduled to announce quarterly numbers on the same day. Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
Robinhood’s second-quarter performance was impressive. Results benefited from the trading surge especially the crypto-trading boom, higher net interest income and a jump in Gold subscribers. This drove the company’s top line.
Transaction revenues, HOOD’s largest revenue source, soared 69% year over year, driven by improvement in cryptocurrencies revenues. This time, also, solid client activity and higher volumes is expected to have resulted in higher trading activities.
Robinhood has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat being 230%.
Surprise History
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for revenues of $661.2 million suggests a 41.6% improvement on a year-over-year basis. Further, in the past week, the consensus estimate for earnings has remained at 18 cents. This indicates a whopping 300% jump.
Estimate Revision Trend
Image Source: Zacks Investment Research
So, is now a good time to add the HOOD stock to your portfolio? Let’s analyze the factors that will influence HOOD’s performance this time.
Factors to Note & Estimates to Impact HOOD’s Q3 Results
Revenues: During the third quarter, client activity was robust, with the major indexes touching all-time highs. This is expected to have supported Robinhood’s transaction revenues, like its peer Interactive Brokers IBKR. IBKR, which released its third-quarter results on Oct. 15, witnessed a 30.6% year-over-year jump in commissions.
The Zacks Consensus Estimate for HOOD’s transaction-based revenues is pegged at $324.3 million, indicating a jump of 75.3% from the prior-year quarter. This is likely to have been driven by higher options, equity and cryptocurrencies transaction revenues.
The consensus estimate for options transaction revenues is $190.5 million, suggesting 53.6% growth. Further, the Zacks Consensus Estimate for equity and cryptocurrencies transaction revenues are $44.5 million and $69.1 million, respectively. Equity transaction revenues are projected to surge 64.7%, while cryptocurrencies transaction revenues are estimated to jump 200.5% year over year.
Relatively higher interest rates are expected to have immensely supported Robinhood’s net interest income (NII) in the to-be-reported quarter, despite the Federal Reserve lowering interest rates by 50 basis points to 4.75-5%. Thus, the consensus estimate for NII is $291.7 million, implying a 16.2% rise.
The Zacks Consensus Estimate for other revenues is pegged at $41.3 million, suggesting a 33.3% increase from the prior-year quarter.
Expenses: Total operating expenses are likely to remain elevated as the company invests in key areas to enhance platform capabilities, drive product innovation, improve customer support and build upon regulatory and compliance functions. Also, the pending Bitstamp deal is likely to have resulted in some restructuring/merger-related charges during the quarter.
What Our Model Unveils for Robinhood
We cannot conclusively predict an earnings beat for Robinhood this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is not the case here, as you can see below.
Robinhood has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
It carries a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
HOOD’s Price Performance & Valuation
Robinhood shares are having a remarkable run on the bourses. The stock has soared 112.4% this year compared with the industry’s rise of 69.7%. Its peer, TW shares have jumped 45.8%.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Now, let’s look at the value Robinhood offers investors at current levels.
Currently, HOOD is trading at 3.55X 12-month trailing Price/Tangible Book (P/TB), above its three-year median of 1.40X. Meanwhile, the industry’s P/TB TTM multiple is at 3.30X. Hence, the stock looks expensive compared with the industry average.
Price/Tangible Book TTM
Image Source: Zacks Investment Research
On the other hand, Robinhood stock is trading well below its peer, Tradeweb Markets. At present, TW is trading at 12.14X 12-month trailing P/TB.
Investment Thesis for Robinhood
Robinhood is on the right path to expand/diversify operations. Given the volatility in the stock market because of several macroeconomic developments, the company will keep benefiting from rising trading volume.
Apart from this, HOOD’s initiatives to keep adding new products and services and plans to become a global entity by venturing across Europe and Asia Pacific regions, organically and through buyouts, align with its expansion efforts. Hence, the company is well-poised to ride the growth trajectory.
Also, in May, Robinhood announced a share buyback plan, authorizing the repurchase of up to $1 billion worth of shares. While the plan doesn’t have an expiration date, the company expects to buy back shares in two to three years, starting from third-quarter 2024.
Should You Buy HOOD Stock Now or Wait?
A favorable operating backdrop, inorganic expansion plans, efforts to diversify the top line to become less dependent on transaction revenues and the launch of new products and services position Robinhood well for robust third-quarter results.
Further, with strong earnings projections, HOOD is well-poised to deliver sustained growth. However, investors must watch for management comments on how the company plans to navigate lower interest rates and future expansion efforts.
So, they should consider these factors carefully and evaluate their risk tolerance before buying HOOD stock. Those who already own the stock can hold on to it because it is less likely to disappoint over the long term.
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Interactive Brokers Group, Inc. (IBKR) : Free Stock Analysis Report
Tradeweb Markets Inc. (TW) : Free Stock Analysis Report
Robinhood Markets, Inc. (HOOD) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
