Not long ago, Robinhood Markets (NASDAQ: HOOD) was one of the biggest stories in the stock market.
The mobile-first trading app disrupted the brokerage industry, making no-commission trades the norm, and brought a new generation of investors into the market, as Robinhood's platform has been most popular with millennials and Gen Z. Robinhood was also central to the meme stock rally and crypto boom in 2021, further evidence of the impact it's had on the stock market.
As a stock, Robinhood has been mostly a disappointment, however. The company went public in a highly anticipated IPO in July 2021. The stock initially popped out of the gate, but then faded as a bear market began just a few months later. As crypto prices fell in volume, trading volume shrunk on Robinhood, and its once-fast-growing business ground to a halt.
However, while the company hasn't been getting nearly as much attention in the financial press these days, the stock has been on a tear this year, roughly doubling year to date. Cant his momentum continue? Let's take a look.
Image source: Getty Images.
How Robinhood bounced back
Robinhood has benefited from high interest rates, allowing it to earn interest on the money it holds in between transactions and on customer deposits, and it's also benefited from the surge in artificial intelligence (AI) stocks and crypto, which has brought back renewed interest to investing after the doldrums of 2022.
Revenue jumped 40% in the second quarter to $682 million, which included a 69% increase in transaction-based revenue. That was also balanced across the board, with options revenue up 43% to $182 million, crypto revenue jumping 161% to $81 million, and equities up 60% to $40 million.
Net interest revenue also increased 22% to $285 million, and its investment in Robinhood Gold, its subscription product, is also paying off, as it reached 2 million subscribers, climbing 61% year over year.
On the bottom line, the company also impressed, as net income jumped from $25 million to a quarterly record of $188 million, or $0.21 per share. That's come from both revenue growth and cost-control measures. Technology and development, its biggest line item, was essentially flat in the quarter at $209 million, and general and administrative expenses were down 16% to $134 million with the help of multiple rounds of layoffs.
Overall operating expenses rose just 6% to $493 million, showing the company is taking control of profitability, generating a GAAP net profit margin of nearly 28%.
Robinhood isn't just benefiting from the bull market. In addition to the growth of Robinhood Gold, it's also expanded into retirement accounts like IRAs, offering investors a more comprehensive suite of services as it aims to serve more than just traders.
Is Robinhood a buy?
Robinhood got another burst this past week after it announced its first Investor Day conference, scheduled for Dec. 4. Generally, companies tend to hold Investor Day events when they have good news or forecasts to share, and the company said it planned to share more about its vision for the next 10-plus years. The conference could be a catalyst for another leg up for the stock.
One risk facing the company is falling interest rates, which will eat into the company's interest income as it earns less on the funds it holds, but the federal funds rate isn't expected to fall back to zero, so this may be less of a headwind than some investors believe.
Robinhood stock is also starting to look reasonably valued, trading at a forward price-to-earnings ratio of 35 based on this year's EPS estimates. With its costs under control, the company's also in a better place than it was a year ago.
Its business remains highly volatile, and another bear market could hurt the shares, but the disruptive brokerage seems likely to keep gaining market share in its industry. For risk-tolerant investors, Robinhood's upside potential looks appealing, but the stock's volatility is likely to remain.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
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