Robinhood (HOOD +0.07%) has earned its moment in the spotlight. The company is profitable, its stock has surged this year, and it is now part of the S&P 500 -- a milestone few fintech startups ever reach.
But even as Robinhood rebuilds credibility, investors shouldn't confuse momentum with safety. Beneath the surface, several risks could test the durability of this recovery. Here are three that long-term investors should keep on their radar.
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1. Regulatory pressure could disrupt its core business model
Robinhood's business still leans heavily on payment for order flow (PFOF) and transaction-based revenue -- both under regulators' watch.
PFOF, where brokers route customer orders to market makers in exchange for compensation, is legal but controversial. Critics argue it creates conflicts of interest because brokers may prioritize payment over best execution for investors. According to Global Trading Network, Robinhood and Charles Schwab together collected more than $460 million in retail order-flow payments in May 2025 -- a reminder of how integral the practice remains to the industry's economics.
In its filings, Robinhood warns that any regulatory change targeting PFOF could materially affect its results.
Crypto oversight adds another layer. Robinhood's digital asset trading arm is growing quickly, but as the company expands in the U.S. and Europe, compliance costs and regulatory risk are likely to rise.
For investors, Robinhood's evolution depends on staying ahead of regulatory changes rather than reacting to them. The company is diversifying into other areas, such as wealth management and banking, but the legacy of PFOF and crypto oversight still shapes part of its risk profile.
NASDAQ: HOOD
Key Data Points
2. Robinhood's business still relies on market cycles
Rising markets, record option volumes, and a resurgent crypto cycle have powered Robinhood's rebound. That momentum has lifted the numbers -- but it also exposes how dependent the business remains on trading activity.
In the second quarter of 2025, Robinhood's revenue rose 45% year over year, driven mainly by growth in transaction revenue, particularly in options and crypto trading. The company reported a 32% jump in options contracts and a similar 32% increase in crypto volumes.
Still, that volatility cuts both ways. When markets are strong, Robinhood thrives. When they soften, revenue can quickly contract. While interest income and subscriptions through Robinhood Gold are growing, they're not yet large enough to offset a market downturn.
In other words, while Robinhood is working to build steadier income streams, its results still move with investor sentiment, at least until the other businesses gain scale. Investors should watch management's execution in the coming quarters as it scales its recurring income businesses.
3. Competition in fintech and brokerage is heating up
Robinhood may have pioneered mobile-first investing, but the niche it created is now fiercely contested. Traditional brokers like Charles Schwab and Fidelity have modernized their apps, cut commissions, and added fractional shares.
Meanwhile, digital challengers are closing in. SoFi is expanding its all-in-one "super app," Public.com is pushing community-driven investing, and Revolut is blending payments and wealth management. Even Coinbase dominates U.S. crypto trading -- a segment Robinhood wants to expand into.
In response, Robinhood is experimenting with social investing features and deeper banking integration. These moves make sense strategically -- they're meant to increase engagement and lock in users -- but execution will determine whether they build loyalty or simply spread the company thin.
Robinhood's early-mover advantage is gradually fading. To stay relevant, it must become a relationship-based fintech, not just a trading platform. The next few years will reveal whether it can build that stickiness with its ecosystem strategy.
What does it mean for investors?
Robinhood has gone through a huge turnaround. The company is profitable, scaling, and maturing from the meme-stock chaos of 2021 into a credible fintech platform.
But long-term transformation is never easy. Regulatory risk, cyclicality, and competition will all shape what kind of business Robinhood becomes during the next few years.
For investors, it means that while the upside looks attractive, the company's execution will determine whether it becomes a reality or remains a vision. Even for those with high conviction, they should keep their eyes wide open before investing their hard-earned cash.
