4. Robinhood Markets Inc. (NASDAQ:HOOD)
Upside Potential as of March 3: 47.70%
Number of Hedge Fund Holders: 79
Robinhood Markets Inc. (NASDAQ:HOOD) provides a user-friendly financial services platform and enables access to stocks, ETFs, options, and cryptocurrencies, alongside various educational resources and financial products. It offers fractional trading, retirement accounts, and educational tools like Snacks and Learn, in order to democratize investing for a broad audience.
In Q4 2024, the company’s revenue exceeded $1 billion, and the full-year revenue was over $3 billion. This was a 58% increase as compared to 2023. The growth was majorly driven by new products like the Robinhood Gold Card, Robinhood Legend, and a derivatives business. All of these are directly related to the company’s active trader platform.
The recently launched Robinhood Legend is already generating $50 million in annualized trading revenue. Customers are putting more money into their accounts than ever before, with deposits reaching a record $50 billion, which is almost 50% more than before. The number of people paying for their premium Gold service is also up 80%. While about 10% of all Robinhood Markets Inc. (NASDAQ:HOOD) customers use Gold, over 30% of new customers in Q4 2024 signed up for it.
Baron FinTech Fund is bullish on Robinhood Markets Inc. (NASDAQ:HOOD) due to its transformation into a profitable, growth-oriented brokerage with strong customer retention and financial metrics. The fund stated the following in its Q4 2024 investor letter:
“We also initiated a position in Robinhood Markets, Inc. (NASDAQ:HOOD) during the quarter. Robinhood is an online brokerage that offers free trading across stocks, options, and cryptocurrencies. Baron Capital has long invested in successful brokerage companies such as Charles Schwab, Interactive Brokers, and LPL Financial. We first met Robinhood in 2021 during their IPO process. Customers were using Robinhood because of its low-cost offering and simple user interface that makes trading easy and accessible. While we were impressed with management’s success in building a modern brokerage with a large user base and strong product-market fit, we were hesitant to invest at a cyclical peak in trading activity and fintech valuations during the middle of the COVID-era meme-stock craze. Following the IPO, trading activity soon normalized and the share price fell significantly.
After revisiting the company this past year, we believe Robinhood is a much-improved business today. Departing from its early reputation as a gamified enabler of retail speculation in meme stocks, Robinhood has been professionalized and transformed into a more durable company that can reliably gain market share and grow earnings over the long term. Some examples of the company’s maturation include: 1) providing retirement accounts that should create larger and longer-lasting client relationships; 2) launching the Gold subscription service that delivers additional value to Robinhood’s best customers; 3) introducing the web-based Legend platform that offers more advanced features for active traders; and 4) exercising expense discipline to right-size the cost base and deliver profitability alongside growth. These efforts have delivered strong financial results, with Robinhood generating annualized net new asset growth of 29%, custodied asset growth of 76%, and an adjusted EBITDA margin of 42% in the most recent quarter. Average revenue per user has also increased significantly from $60 in 2022 to $107 in the first nine months of 2024 across more than 24 million funded accounts. The customer retention rate is a very strong 95%, up from 80% three years ago…” (Click here to read the full text)