Robinhood (HOOD +0.63%) has built an impressive business in a very short period of time. It went from being a start-up to competing with industry leaders like Charles Schwab (SCHW +1.01%) and Interactive Brokers (IBKR +2.68%). Investors have rewarded Robinhood for this success, with the stock more than doubling since its initial public offering in 2021, easily outpacing the S&P 500 index's (^GSPC +0.81%) roughly 60% gain over the same span.
There's just one small problem that investors need to keep in mind. Robinhood hasn't been around nearly as long as its competitors. While the stock is down 50% from its 2025 high and trading below $80 per share, it might still not be worth buying. Here's what you need to know and why the company's first quarter 2026 earnings update shows that the broker's business foundation may not be as strong as it appears.
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Robinhood has achieved huge success
Robinhood deserves a huge amount of respect as a business. Not only has it grown quickly, but it has literally forced its competitors to change their fee structures. In fact, offering free trades is how Robinhood built its business in the first place, and other discount brokers quickly followed suit after seeing its growth.
Robinhood's innovation didn't stop there. It has quickly added products and services that keep pace with customer demands, including options, cryptocurrencies, and prediction markets. It is living up to its stated goal of "democratizing" investing, highlighting in its annual report that "We understand that millions of our customers have used Robinhood to enter the financial markets for the first time." But therein lies the risk.
Robinhood's first-quarter problem
When Robinhood reported first-quarter 2026 earnings, it highlighted 15% year-over-year revenue growth. That's not bad at all, and the financial company should be pleased with the outcome. However, if you dig into the numbers a bit, you start to see some less-positive trends.
For example, transaction-based revenues rose 7% year over year. That was heavily driven by the 320% increase in "other" revenue growth. A footnote in the company's slide deck explains that the "other" category is largely made up of prediction markets. Prediction markets are hot right now, so it makes sense that this is where the company's strongest revenue growth came from. Prediction markets are also relatively new, so the growth is coming off a small base. That makes the growth look particularly impressive.
NASDAQ: HOOD
Key Data Points
The problem arises when you look at the 47% decline in transaction revenue from crypto trading. At one point, that was the hot theme among the company's customers, but obviously, they have moved on to other things. This could indicate that Robinhood's customers are more focused on doing the "in thing" than on investing for the long term. Effectively, its customers may be chasing returns, noting that cryptocurrencies have been performing relatively poorly in 2026, continuing a trend that began in late 2025.
If there is a deep bear market, on par with the Great Recession or the painful dot-com market crash, Robinhood's relatively new investor base may simply stop investing. That wouldn't be shocking at all, since fear will likely lead most investors to do the same thing. However, it may take years for newer investors who faced a deep market downturn to return to investing, if they ever do. It is one thing to invest when you are making money, but an entirely different thing to keep investing when you are losing money.
Robinhood's big test is still ahead of it
There's little question that Robinhood has built an impressive business. However, even after the massive stock price decline, Robinhood's price-to-earnings ratio remains slightly higher than Interactive Brokers'. And its P/E is nearly twice that of industry icon Charles Schwab. It isn't a cheap stock.
If there is a deep bear market and its customers don't return to trading as enthusiastically as they do now, there could be more downside for the company and its stock. The drop off in crypto trading is a sign that this risk could be more material than many investors believe. Until Robinhood has lived through a deep and prolonged market downturn as a public company, most investors should probably keep this stock on their wish list.
