Summary
Since Robinhood’s record close of $70.37 on 8/4/21, shares have fallen by just over 60%, as they are now trading around $28 which is a decrease of over 26% from its IPO.
HOOD’s growth has hit a roadblock as its QoQ numbers declined in funded accounts, MAUs, revenue per user, and total revenue.
HOOD is at a crossroad yet its current valuation is interesting. If HOOD can get it right, this could be an interesting investment but the competition may be too fierce.
Spencer Platt/Getty Images News In the first week of trading, Robinhood (NASDAQ: HOOD ) shares experienced short-lived euphoric price action as shares more than doubled, reaching a high of $85. Since HOOD’s record close of $70.37 on 8/4/21, shares have fallen by just over 60%, as they are now trading around $28. HOOD’s IPO opened at $38 per share on 7/29/21, so if you had gotten in on the IPO and held, your investment would have decreased by roughly -26.32% over the past four months. Since going public, HOOD couldn’t maintain any share appreciation and crashed directly through its IPO price. I find it interesting that when I read ARK Invest’s trade notification statement each night, HOOD has become a reoccurring addition to their portfolios. Since HOOD reported on 10/26/21, here are all of ARK Invest trades regarding HOOD: (Source: Steven Fiorillo) (Data Source: ARK Invest)
ARK Invest has added over 8.35 million shares of HOOD to its funds since earnings were released on 10/26. I am not seeing the vision on how HOOD is disrupting personal finance, and after going through the earnings report, I am not seeing the upside potential that ARK is seeing. In no way am I discrediting HOOD’s accomplishments as they pioneered commission-free trading and played a large role in putting personal finance and investing in the spotlight for a younger generation. HOOD’s premise revolved around creating a financial system that worked for everyone and democratizing finance for all. This resonated with many investors, and HOOD became the financial platform of choice for many individuals in Generation Z and some Millennials during 2020 and 2021.
So the real question is, with shares of HOOD caught in a downward spiral having blown through its IPO price by -26.16%, is there an opportunity? The short answer is maybe. Maybe Cathie Wood and the team at ARK Invest are correct, but after reading through the quarterly materials, HOOD isn’t jumping out as a screaming buy to me. If you have a long-time horizon, HOOD could certainly figure things out, but its sequential QoQ growth has reversed, and there are trends in the numbers that concern me. If shares continue to sell off, I think HOOD could look very interesting at a lower valuation, and maybe even an acquisition target as consolidation in the industry could continue. The red flags that stand out to me after earnings
For HOOD’s sake, I hope the numbers from Q3 are an anomaly, but they are concerning as growth has hit a major impediment. The first problem is their net cumulative funded accounts. HOOD experienced tremendous YoY growth in this category as their funded accounts grew by 11 million (96.49%), but this is the first quarter where this number sequentially declined. Since Q3 2020, HOOD’s cumulative funded accounts QoQ increased by 1.1 million (9.65%) in Q4 2020, then by 5.5 million (44%) in Q1 2021, and by another 4.5 million (25%) in Q2 2021. HOOD was adding funded accounts, increasing their revenue prospects consistently QoQ, and in Q3 2021, growth stalled as their funded accounts decreased by 100,000 (-0.0044%).
The cumulative funded accounts are only the beginning of the red flags, and the metrics people probably aren’t correlating with Monthly Active Users (MAU) could be the most disturbing. HOOD experienced tremendous YoY MAU growth as it added 8.2 million users (76.66%) YoY. The first problem is that QoQ HOOD’s MAUs decreased by -2.4 million (-11.27%). The second problem is hidden as it’s the correlation between funded accounts and MAUs. In Q3 of 2020, 93.86% of funded accounts translated to monthly active users. In Q4 2020, the correlation between the two was 93.6%, then in Q1 2021, HOOD saw a correlation rate of 98.33%, and in Q2, the correlation was 94.67%. HOOD has an average correlation between MAUs and funded accounts of 95.12% over the past four quarters prior to Q3 results. In Q3, HOOD not only witnessed its first QoQ decline, which came in with a loss of -2.4 million […]
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