Robinhood (HOOD +0.01%) has been one of the top-performing fintech stocks in the market, comfortably outpacing the S&P 500 with its 222% year-to-date gain. Even with that rally, it's still down by more than 20% from its all-time high.
Some stocks go into the new year better than ever and swiftly climb to all-time highs. However, other stocks lose their shine as revenue growth decelerates and more investors question valuations.
Investors can speculate what can happen next with Robinhood stock, but these are some predictions to monitor.
Crypto transaction revenue will decelerate
Image source: Getty Images.
Crypto transactions were a big part of Robinhood's revenue this year. For instance, third-quarter revenue came to $1.27 billion, with $268 million of that coming from crypto trading. That part of Robinhood's business jumped by more than 300% year over year.
NASDAQ: HOOD
Key Data Points
It's hard for any company to maintain that type of growth rate forever, and Robinhood will be no exception to the rule. More competitors are entering crypto trading, such as SoFi (SOFI +0.99%) and Charles Schwab (SCHW +0.66%). As more companies enable crypto trading, Robinhood will face stiffer competition, which can limit future customer growth.
However, the bigger concern is the boom-and-bust nature of crypto transaction revenue. For instance, Robinhood delivered 860% year-over-year revenue growth for its crypto trading segment in Q3 2021, which was during a crypto boom. Granted, it was easier for Robinhood to deliver such a high growth rate since its crypto segment was much smaller, going from $5 million in Q3 2020 to $51 million in Q3 2021.
Then, the crypto winter came, and Bitcoin (BTC +0.73%) lost more than 70% of its value in one year. That also happened to be a miserable year for Robinhood's crypto transaction revenue, which only came in at $51 million, little changed year over year.
It wasn't that long ago when Bitcoin was up by more than 30% year to date, but the famed cryptocurrency has given up all of its gains for the year. It's now down by 7% year to date (as of Dec. 23), and that includes a 30% decline in less than three months. Investors may want to brace for lower crypto transaction revenue growth in Q4 with pessimistic Q1 forecasts unless Bitcoin stages a comeback.
Robinhood Gold will get more attention in press releases
Current Robinhood press releases focus on three income segments: transaction-based revenue, net interest revenue, and other revenue. The "other revenue" category was heavily driven by Robinhood Gold and doubled year over year.
The Robinhood Gold subscription plan gives consumers perks that let them build their portfolios faster. Interest-free margin for the first $1,000, a 3% IRA match, and high yields on idle cash are some of the perks. Robinhood increased its gold subscriber base by 77% year over year, reaching 3.9 million total subscribers in the process.
Robinhood Gold subscriptions are money makers in their own right. Gold members pay $5 per month or $50 per year for a plan. Members can make some of their money back with higher annual percentage yields (APYs) and IRA matches, but these plans offer additional benefits that translate into higher revenue growth.
First, Robinhood Gold may be enough for some people to switch from their favorite brokerage account to Robinhood. Few financial stocks compete with Robinhood Gold. The second advantage is that turning people into Robinhood Gold members can increase their transactions. Robinhood is a business, and the fintech company has only kept Robinhood Gold going because it is making big profits.
The company found that average revenue per user came to $191, which represents an 82% year-over-year increase. That figure is across regular customers and Gold members. It's feasible for Robinhood to have more than 10 million Gold members by the end of 2027, assuming it maintains current growth rates.
Investors should monitor Robinhood Gold numbers closely. It's a key catalyst that will likely have more prominence in future press releases instead of being lumped in the "other revenue" category.
