Jim Cramer has been bullish on trading platform operator Robinhood Markets, Inc. (NASDAQ:HOOD) for more than a year now and has based his opinion on the technological advantages of the firm’s platform and the enabling role it’s playing in wealth transfer across generations in America. With the firm now seeking to diversify its revenue away from markets and into other areas, it was unsurprising that Cramer remained positive:
“He’s had the inflows, are incredible. The 3% back card, is doing really well, on it’s own. For the first time he has a product that is not related to stock trading. And it’s bringing in a lot of people. 3% is what intrigued me. But yeah, tonight you’re going to hear him. Look, he’s on a major roll. It’s going higher. Major roll.
The 3% back card Cramer discussed is Robinhood’s Gold Card that offers a 3% cash back. The card is part of a broader strategy by the firm to diversify its revenue. The diversification, in turn, is part of the debate for Robinhood Markets, Inc. and its ability to sustain growth after having made its mark in the retail stock trading market. Looking at the firm’s broader performance, it is growing on several fronts.
Robinhood’s second quarter earnings revealed that not only did the firm’s revenue grow by 32%, but it fired on multiple cylinders. The firm’s net deposits hit a record $22 billion, its platform assets jumped by 32% annually to $369 billion, gold subscribers grew by 39% to 4.8 million and funded customers jumped by 1.9 million. Additionally, short term derivates of the prediction markets business called Event Contracts jumped by more than ten times annually to sit at $156 million. As if this weren’t. enough, Robinhood also revealed during the earnings that 13 business lines had generated more than $100 million in revenue.
The growth across multiple areas was key as the firm’s cryptocurrency fell by 38% to $100 million. Additionally, while the second quarter’s prediction markets’ performance was strong, in August, event contract value dropped by 23% sequentially to 4.7 billion units. With the figures nevertheless still up by 15x annually, the debate isn’t about whether growth is slowing but whether it has peaked. The woes for the business could also start if regulators start to tighten laws related to the business, at a time when roughly 36% of Robinhood’s revenue depends on equities and options.
The valuation reveals that Robinhood is trading at a forward P/E ratio of 45, higher than Interactive Brokers’ 28 and Charles Schwab’s 12.8. 87 funds disclosed a stake in Q2 that marked a jump over the 84 in Q1. Short interest as a percentage of float of 4.62% is higher than both peers.
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