What happened
Shares of Robinhood Markets (HOOD 1.73%), the disruptive financial brokerage targeting millennials and Gen Z, opened 14% lower today before rapidly recovering those losses.
The stock dove after-hours yesterday after the company issued disappointing fourth-quarter results and weak first-quarter guidance. However, Wall Street mostly maintained positive price targets on the stock this morning and some investors seemed to see the dip as a buying opportunity.
As of 11:38 a.m. ET, the stock was up 5.9% as the Nasdaq rallied as well.
Image source: Getty Images.
So what
When Robinhood went public nearly a year ago, it was posting rapid growth with revenue doubling on a year-over-year basis, but that momentum has quickly faded. In the fourth quarter, total revenue rose 14% to $363 million, which matched estimates. The company saw strong growth in cryptocurrencies as transaction-based revenue in crypto quadrupled from the year before to $48 million, with crypto trading booming last year and the company making a bigger push into digital currencies. However, transaction-based revenue in equities declined 35% to $52 million. Options trading remained its biggest category of transaction-based revenue, up 14% to $163 million.
On the bottom line, the company reported an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $87 million, compared to a profit of $79 million in the quarter a year ago, and under generally accepted accounting principles (GAAP), it lost $0.49 per share, slightly worse than the consensus of a $0.45 per-share loss.
First-quarter guidance called for a sequential decline in revenue of "less than $340 million" or a 35% drop from Q1 2021 as the company laps the boom in meme stocks like GameStop and AMC Entertainment Holdings. The average analyst had expected first-quarter revenue of $448.2 million.
Now what
Despite an overall disappointing report from Robinhood, the stock was well into positive territory by the late morning. It wasn't fully clear why, but there are a number of plausible explanations. First, analysts seemed to lean positive on the stock after the report despite the ugly quarter. For example, Barclays' Ross Sandler said that the risk/reward is "starting to look more positive" with the stock trading at a forward price-to-sales ratio of just 6. Devin Ryan of JMP Securities, meanwhile, lowered his price target, but only to $45, implying 300% upside to the stock, and he argued that the company was building out its next leg of growth.
Meanwhile, Robinhood investors who have long rallied around buying the dip in other investments may be doing the same here, especially as the stock does look cheap, down more than two-thirds from its $38 initial public offering price.
There's still a lot of uncertainty for the stock. Robinhood deserves credit for making no-fee trading commissions the norm and for bringing millions of millennials into the market, but the trading boom it benefited from last year seems to be over, meaning it may not be the growth stock investors had hoped it was.
