Robinhood Markets, Inc. (HOOD): A Bear Case Theory

Published on August 4, 2025 at 1:38 pm by Ricardo Pillai in News, Stock Analysis

We came across a bearish thesis on Robinhood Markets, Inc. on SixSigmaCapital: Navigating the Financial Markets’s Substack by SixSigmaCapital. In this article, we will summarize the bulls’ thesis on HOOD. Robinhood Markets, Inc.’s share was trading at $106.77 as of July 28^th. HOOD’s trailing and forward P/E were 61.01 and 75.76, respectively according to Yahoo Finance.

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Robinhood Markets Inc. (HOOD), known for its commission-free trading and rapid product expansion, has been a beneficiary of the ongoing bull market, but several structural factors suggest growing downside risks. Since Q1 2023, total revenues have surged from $441M to $927M in Q1 2025, with net interest revenues increasing from $208M to $290M and transaction-based revenues climbing from $207M to $583M.

However, more than half of transaction revenues now come from options speculation and crypto trading, both highly cyclical and vulnerable to sharp contractions in a market downturn. Net interest income, which grew as rates rose, faces dual pressure: significant rate cuts are expected once Chairman Powell steps down, and customer cash balances — the primary driver of interest on segregated funds — tend to fall sharply during bear markets.

Together, options, crypto, and net interest revenues accounted for 84% of total Q1 2025 revenues, creating heavy reliance on factors that are prone to mean reversion. Despite impressive recent performance — including 50% YoY revenue growth, >100% EPS growth, and a rule of 40 score above 100 — HOOD trades at a stretched valuation of 27x sales and 57x earnings, leaving it highly exposed if current tailwinds fade.

Technicals confirm an overextended stock, with RSI at 72.2 and trading more than 100% above its 200-day SMA. A cyclical downturn, falling rates, and reduced platform cash could trigger a major correction, setting up an attractive short opportunity once negative divergences in key KPIs or topping patterns appear.

Previously we covered a bullish thesis on Robinhood Markets, Inc. (HOOD) by Chit Chat Stocks in May 2025, highlighting its under-monetized young user base, rising assets under custody, and ARPU growth potential. The stock has appreciated about 64% since, driven by these growth trends. SixSigmaCapital shares a contrarian view, emphasizing revenue cyclicality and valuation risk.