Robinhood (NASDAQ:HOOD) stock looks great again, and the company’s management responded by pushing ahead with a cryptocurrency wallet. This puts it in competition with a host of companies including Coinbase (NASDAQ:COIN). The company is also thinking of adding crypto assets to its balance sheet, which could boost HOOD stock.
Unlike Robinhood’s original app, which transformed markets by letting small investors trade stocks without commission, crypto looks like a defensive play. In addition to Coinbase, Square (NYSE:SQ) and Paypal (NASDAQ:PYPL) are getting into crypto as it goes mainstream.
Still, the move drew speculators to Robinhood stock, which jumped nearly 14% in three trading sessions to open Sept. 23 at $46 per share.
Robinhood’s Books
That price gives Robinhood a market cap of $36 billion after second-quarter revenue jumped 131% from 2020 to $565 million. The growth came at a price — a loss of $501 million, or $2.16 per share, driven by a tripling of costs for technology and operations.
Robinhood next reports in mid-November. Analysts are expecting another loss, this time at $1.40 per share on revenue of $404 million.
Analysts at TipRanks have a “moderate buy” rating for the stock. The one-year price target is 18% higher than Robinhood’s current price.
The best news may be that while the stock fell hard in August from a high of $70 per share, tech whisperer Cathie Wood was loading up on it. Her ARK Investment Management firm has bought 390,000 shares so far in September, becoming the company’s fifth-largest shareholder with a 1% stake.
Full Speed Ahead for HOOD Stock
One reason Robinhood stock fell during August was the Securities and Exchange Commission (SEC). Chairman Gary Gensler told a Senate hearing that payment for order flow (PFOF), which Robinhood depends upon to make trading free, may be a conflict of interest.
If a ban happens, analysts think Robinhood could maintain free trading by collecting rebates from traders. It might also offer services like cash management and the loaning of stocks. It might even open its own trading desk. This would put Robinhood in direct competition with brokers like Charles Schwab (NYSE:SCHW) and Morgan Stanley (NYSE:MS), opening up new avenues of risk while also offering new opportunities.
Despite the stock’s August swoon, Robinhood is being as aggressive as its traders in seeking growth. That’s partly because, in announcing its second-quarter numbers, it warned that trading was slowing.
For example, the company has launched a new marketing campaign on college campuses with a $20,000 prize. Students will get $15 loaded into accounts when they provide the company with their school email address.
Robinhood also made its first acquisition in August, putting $140 million into Say Technologies. The Say platform aims to help shareholders vote in annual meetings, asking questions and analyzing documents just like analysts.
The Bottom Line on HOOD Stock
My greatest fear for Robinhood is that it might become a generic trading platform. Its moves on marketing and crypto are intended to prevent that.
If it can maintain its hold on young traders and grow with them, Robinhood CEO Vlad Tenev could be this generation’s Charles Schwab. Schwab began his career with a trading letter before becoming a discount broker, building a company with a current market cap of $133 billion.
But there are many steps between Robinhood’s current $36 billion market valuation and Wall Street acceptance. These don’t involve just marketing and regulation, but trading and technology risks. A market maker who gets high on their own supply can quickly go out of business. That’s the big risk I see in the stock — it’s a long way to the moon.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.