It's been a wild first few weeks of trading for Robinhood Markets (HOOD 2.50%) as a public company, and the volatility isn't taking a breather anytime soon. The revolutionary online trading platform reports its second-quarter results after Wednesday's market close. A lot is riding on the fresh financials.
Robinhood stock has been all over the map after hitting the market at $38 late last month. It was initially a dud, closing below its debut price in its first three days of trading. Then the bulls took over. By its fifth day of trading the stock peaked at $85. Robinhood has been inching down ever since, moving lower in five of the past six trading days. A blowout financial update could naturally turn things around.
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1. Expectations are easy to beat
Growth is booming for Robinhood. Revenue more than tripled last year, rising 245% in 2020. This year is already off to an even better start, with Robinhood's top line more than quadrupling with a 309% year-over-year burst in the first quarter.
We don't have a lot of major analyst coverage on Robinhood just yet, and the expectations aren't necessarily high for the three analysts currently putting out forecasts. They see Robinhood reporting $521.8 million in revenue, 114% higher than the $244.2 million million it delivered in the same three months ending in June a year earlier. Most companies would be tickled to see revenue at their business double over the past year, but we've clearly seen Robinhood growing even faster.
Wall Street's top-line target for Wednesday's after-market report is also a slight sequential dip from the $522.2 million it scored three months earlier. Trading will always be lumpy for brokerage platforms, but we've already seen Coinbase Global and Charles Schwab post sequential increases for the same period earlier this earnings season. It would be pretty shocking if Robinhood merely meets expectations and doesn't improve on its first-quarter performance. Two of the three analysts see a small profit for the quarter, but this isn't a bottom-line growth story right now.
2. Robinhood can stack the call in its favor
You never know the questions that analysts will ask in an earnings call, but Robinhood is also letting its shareholders get in on the Q&A action. Robinhood is turning to Say Technologies -- a company it acquired last week that allows proven shareholders to ask and upvote questions -- to fuel at least part of its presentation.
The three most upvoted questions as of Tuesday night are all favorable:
- Is Robinhood getting a crypto wallet?
- Are there any plans to launch Robinhood in other countries? If yes what is the timeline?
- When do you think we will get features such as having multiple accounts, joint accounts, and beneficiaries?
Robinhood offers cryptocurrency trading, but it's limited to just a handful of denominations and you can't move cryptocurrencies in or out of Robinhood. A cryptocurrency wallet is inevitable if it wants to compete in this booming niche that Coinbase is running away with.
We already know the answer to the first part of the second question. Robinhood's prospectus builds up the market potential of expanding outside of the U.S. market. If it wants to get the stock going it may want to go public with a timeline.
The third question speaks to many of the feature gaps at Robinhood. It's just a matter of time before joint accounts, IRAs, and mutual fund trading become part of the platform.
Robinhood may not offer concrete answers to any of these questions, but they're all softball questions with fence-swinging potential. Swing away, Robinhood.
3. There's a timely analyst initiation
Redburn analyst Charles Bendit initiated coverage of the stock on Tuesday morning with a bullish buy rating. His fail value estimate of $65.35 suggests 40% of upside from current levels.
Bendit feels that if Robinhood Markets is able to capture 1% of the global neo-banking revenue by 2023, it could double to be valued more in line with that of other disruptive fintech stocks. With a strong presence in crypto and the expectations of making a play for adjacent consumer finance areas given its young and growing audience he's naturally bullish on Robinhood's future.
Redburn isn't necessarily one of the largest firms, but it's still an important initiation. It's encouraging to see Bendit make this bullish call the day before a telltale earnings report, suggesting that he is confident enough to stick his neck out for a stock that should move sharply higher or lower in Thursday's trading session. It's been a successful start to this fintech IPO stock's brief tenure on the market. A good first impression with its first quarterly report is everything right now.
