robin hood (NASDAQ:Food) The stock is doing well, up 87% over the past 12 months. The company gained notoriety for its role in the meme-stock-fueled frenzy, with its stock price rising to $85 in the days following its 2021 IPO.
Despite the recent rally, Robinhood stock remains 80% below its all-time high. The company has made progress in improving its earnings in recent quarters. However, there are still some major issues that need to be resolved. There are several things to consider before purchasing Robinhood.
Robinhood has revolutionized finance in many ways
Founded more than a decade ago, Robinhood aimed to “democratize finance for everyone” and make investing more accessible and affordable for individual investors. The company introduced zero-commission trading and upended the traditional brokerage revenue model. Fractional shares also became popular, and their innovation prompted changes in securities companies.
The company also faces understandable scrutiny. For example, the company has come under fire for its gamification of investing, which some believe led to impulsive behavior and overtrading, and was a key part of the meme stock frenzy a few years ago.
Robinhood has also been criticized for its business model of selling its customers' order flow to market makers for a small commission in return. While this allows for commission-free trading, some argue it creates a conflict of interest and prevents customers from getting the best possible price.
Growth has slowed in recent years
Last year, Robinhood generated $1.9 billion in revenue, up 37% year-over-year, but it was a difficult time for the company. The company's sales were approximately 3% higher than in 2021, which benefited from strong stock market activity.
The company is having trouble making a profit. It lost $541 million last year, which was actually an improvement from its $1 billion loss and $3.7 billion loss in the previous two years.
The company is also seeing slower growth in its customer base. Last year, the number of customers who provided funds was 23.4 million, an increase of 1.7% over the previous year. Additionally, the number of monthly active users was 10.9 million, a decrease of 4.4% from the previous year and a decrease of 37% from 2021.
Here's how brokers plan customer acquisition
Robinhood is taking steps to attract more customers to its platform. As an example, a Robinhood Gold customer can earn 5% interest on her invested brokerage cash. We also offer traditional Individual Retirement Accounts (IRAs) and Roth IRAs, and encourage customers to become long-term account holders by matching their payments. He also offers his 24-hour trading on hundreds of stocks, 5 days a week.
The company has taken several steps to diversify its business and attract more customer funds to its platform. Assets under custody have been growing steadily, increasing 65% from the previous year to $102.6 billion. However, this is only a 5% increase over his previous high in 2021.
Robinhood faces stiff competition and has not gained a foothold with key customer groups. According to research by The Motley Fool, blockCash App is the most popular investment app among respondents at 38%. Fidelity was next highest (11%); coinbase (10%), acorn (9%), JP Morgan (9%), and finally Robinhood (9%).
It is also the 5th most used app among key Gen Z and Millennials, indicating that its moat is not very strong and it will need to work hard to gain market share. .
Is it a buy?
The company has been profitable in two of the past three quarters, indicating that its earnings are improving. However, there are two metrics he would like to see show stronger growth. It's the number of customers funded and the number of assets under custody. Its growth has slowed significantly compared to just a few years ago, and the intense competition in the securities industry will make it difficult to gain market share.
The company is still in the early stages of its growth story and its outcome is still uncertain, making it a highly speculative investment at this point. Most investors would be best to avoid the stock for now.
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JPMorgan Chase is an advertising partner of The Motley Fool's Ascent. Courtney Carlsen has no position in any stocks mentioned. The Motley Fool has positions in and recommends Block, Coinbase Global, and JPMorgan Chase. The Motley Fool has a disclosure policy.
Is Robinhood stock worth buying?Originally published by The Motley Fool
