5 Reasons Why Robinhood Stock Is Surging

According to analysts at Bernstein, the surge in Robinhood’s performance in 2021, which was closely linked to the Zero Interest Rate Policy (ZIRP), has now shifted as the platform adapts to a "Peak Interest Rate Policy" (PIRP) with declining rates.

The firm stated, "Robinhood has not only weathered challenges but is now maturing into a sustainable business with improving financial metrics."

Robinhood’s stock has seen a significant increase, rising approximately 30% in the last month and nearly 100% year-to-date. Bernstein identified five crucial factors behind this recent momentum.

1. Growing Assets, Not Just Trading Revenues: Robinhood’s assets under custody have reached $140 billion, a 57% year-over-year increase by the second quarter of 2024. The firm noted that "assets per customer have more than doubled from $2,800 to $5,800 per account." Additionally, the company is effectively drawing in new deposits and encouraging transfers through incentives like a 1% bonus for deposits and competitive yields on uninvested assets.

2. Transaction Revenues: Bernstein reported a rebound in trading volumes across Robinhood’s core products. Equity trading has increased by 57% year-over-year, while crypto trading has surged by 135%. The firm pointed out that "transaction revenues are now roughly 50% of total revenues after hitting a low of 40% in the second quarter of 2023."

3. Crypto Momentum: In the first half of 2024, Robinhood’s crypto revenues skyrocketed by 160%. Bernstein believes the company stands to gain even more from the upcoming crypto bull cycle, especially following its recent acquisition of Bitstamp, which diversifies revenue streams into stablecoins, staking, and derivatives.

4. Product Innovation and Expansion: The company’s global expansion efforts and innovative product development are reportedly yielding positive results. New offerings such as Robinhood Wallet, enhanced options for Gold customers, and a retirement accounts program have been launched. Bernstein highlighted Robinhood’s ongoing commitment to roll out new products and aggressively expand into international markets, specifically noting recent initiatives in the UK and Europe.

5. Strong Operating Leverage: Robinhood has made significant strides in optimizing its cost structure, reducing operating expenses (excluding stock-based compensation) from 160% of revenues in the first quarter of 2022 to 60% in the second quarter of 2024. With revenues on the rise and a fixed cost structure comprising 90% of total expenses, the company is realizing strong operating leverage. Bernstein projects positive operating income of approximately $900 million for 2024.

Bernstein continues to maintain an Outperform rating on Robinhood, with a price target set at $30.