Robinhood revenue up 40% on crypto trading: Should you buy?

Key points

• Robinhood posted record revenue in the second quarter.

• Revenue from crypto trading rose 161% in Q2.

• The company is looking to bolster its crypto trading with new acquisition.

Online broker Robinhood saw revenue increase 40% in the second quarter, fueled by a significant increase in crypto trading.

Robinhood Markets (NASDAQ: HOOD), the online brokerage, had an impressive quarter with record revenue and a 652% spike in net income.

The firm generated $682 million in revenue, a 40% increase over the same quarter a year ago. This record amount of revenue easily beat estimates of $643 million.

Net income soared to $188 million, or 21 cents per share, which is 652% higher than the $25 million made in the second quarter of 2023. It was also 20% higher than the first quarter total. Analysts had predicted profits of 15 cents per share.

Robinhood stock was up about 1% in morning trading on Thursday. The stock price has surged 35% year-to-date (YTD).  

Crypto trading boosts revenue

The second quarter was solid for equity markets, as the S&P gained about 4% in the quarter, but it was the volatility in the crypto markets that provided Robinhood with its biggest lift.

Robinhood makes money in a few different ways – through transaction fees from market makers or exchanges, subscriptions for some of its services, and through interest from securities lending, cash sweeps, and margin loans.

In the second quarter, transaction-based revenue soared 69% to $327 million. That increase was fueled by a 161% spike in crypto trading revenue to $81 million. Equity transaction revenue climbed 60% to $40 million, while options trading increased 43% to $181 million.

Crypto and equity trading were buoyed by crypto volatility, the resurgence of meme stocks, as well as events like Bitcoin halving and the approval of Bitcoin and then Ethereum ETFs.

The company is looking to grow its presence in the world of crypto trading as it acquired Bitstamp in June, a global cryptocurrency exchange.

“We believe it will accelerate our crypto road map, enabling us to serve a broader user base, enhance our capabilities, and provide additional liquidity for crypto trading,” CFO Jason Warnick said on the earnings call.

In addition, in July, Robinhood bought a company called Pluto, an investment research platform that uses AI to provide research, analysis, and advice.

“We’re really excited about Pluto,” CEO Vlad Tenev said on the call. “And in terms of what we plan to do with the team and the technology, we think they can help us accelerate the work we’re doing both in AI and in advisory.” Tenev did not elaborate on the company’s plans for Pluto but said “we’ve got some really good stuff in the works there.”

Q3 is off to a strong start

Compared to a lot of its recent startup fintech peers, Robinhood has executed better than most, in a very crowded and competitive marketplace. It is already profitable, and it seems to be expanding and growing at the right pace, and in the right areas.

It has grown its net deposits by an annualized rate of 37% over the past year, including a record $13.2 billion in Q2. It also increased its assets under custody by 57% to $140 billion year-over-year. Further, it added 1.4 million customers year-over-year and now has 24.8 million, while its average revenue per customer jumped 35% to $113 per customer.

In addition, it has managed to keep expenses in check, up just 6% to $493 million from Q2 2023.

For the full year, Robinhood is on track to have between $1.85 billion and $1.95 billion in operating expenses – which would be up just 5% at the midpoint from 2023 but down 13% from 2022 spending.

On the call, Warnick said that trading activity in July was up 20% from June, which was a great month for trading with near record options volume. And August, so far, looks as strong as July.

“We have a lot of momentum entering the second half of the year as our business is having a great start to Q3,” Warnick said.

Is Robinhood stock a buy?

Robinhood has a median price target of about $22 per share, which is up some 25% from its current price.

While markets could be volatile this quarter, that is not necessarily a bad thing for Robinhood stock, in fact, it could be a good thing.

There is a lot to like about Robinhood stock. One concern is that it is not yet consistently profitable, and it has a high P/E ratio of around 55. But on the other hand, its growth and expense management are impressive.

At a low entry point of $17 per share, this might not be a bad option to consider, although it might be wise to jump in sometime after earnings to see if the price settles lower a bit.