In mid-December, Cathie Wood of ARK Invest snapped up shares of the popular retail brokerage Robinhood (HOOD 3.25%) to the tune of $13.4 million. That's not an insignificant buy, considering ARK's Blockchain & Fintech Innovation ETF owns over $59 million of Robinhood stock. Robinhood is now the fund's fourth-largest holding, accounting for roughly 5.2% of its investments.
Robinhood has had a fantastic year, with the stock up more than 215% (as of Dec. 26). However, the stock has slipped lately and and is now down about 18% since the beginning of November. Should investors follow Wood and buy the dip?
Why the stock has faltered
It's been a banner year for Robinhood, as a pro-crypto Trump administration has allowed the company to go full speed ahead on its crypto offerings, with less concern about regulatory pushback. Additionally, the integration of prediction markets and a robust stock market has also fueled the company's growth, resulting in a significant increase in funded investment accounts, assets under management, and improved profitability.
Image source: Getty Images.
In the third quarter, Robinhood reported earnings per share and revenue that came in ahead of Wall Street estimates, with revenue doubling from a year ago. Crypto-related revenue also came in strong in the quarter at $268 million, although it fell short of estimates. Additionally, longtime Chief Financial Officer Jason Wernick announced his retirement in 2026.
The big crypto sell-off in recent months can also likely explain some of the struggles in the stock, which, again, has still generated fantastic gains for investors, so investors may have also had valuation concerns.
The company has built a tremendous business
Robinhood has come a long way from its launch in 2013, when it pioneered commission-free trading and introduced millions of new consumers to the world of investing. Not only can investors buy stocks, options, and crypto on the platform, but customers can also access many other services through the Robinhood Gold membership, which costs $5 per month.
The subscription includes an attractive interest rate on uninvested cash (sweep cash), higher limits on instant deposits, the ability to invest on margin, 3% match on annual contributions to individual retirement accounts on the platform, research and data, investment advisory services, and more. Robinhood's Gold credit card also offers 3% cash back on all purchases, which is higher than most, if not all, competitors.
NASDAQ: HOOD
Key Data Points
Robinhood has also partnered with Kalshi to provide people with access to prediction markets and plans to roll out additional banking products, including checking and savings accounts, as well as a digital wealth management app. This makes it very easy for people to handle all their investing and betting needs, and soon, banking as well. Robinhood is also very easy to use. These products are clearly resonating with customers. Robinhood now has $24.2 billion in retirement assets under custody, representing a 250% year-over-year increase.
Is the falling stock a buying opportunity?
I certainly like the platform Robinhood has built, and I use it with strong satisfaction. The investing platform is easy to use, particularly for purchasing options, as it clearly shows you how much you stand to make in different price scenarios for a given stock. I also find the Gold membership useful, and can easily see how the platform is becoming a one-stop shop with a powerful flywheel.
However, the stock trades at more than 49 times forward earnings and 26 times forward sales, making it quite expensive. Although the growth in transaction-based revenues has been phenomenal, much of it can be attributed to options and crypto transactions, revenue that I suspect is going to be volatile, depending on market conditions.
For this reason, I'm a bit more neutral on the stock and would recommend waiting for further dips or dollar-cost averaging into the stock.
