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On Monday, Raymond (NSE:RYMD) James analyst Patrick O’Shaughnessy confirmed a Market Perform rating on Robinhood Markets (NASDAQ:HOOD). The analyst highlighted the company’s significant revenue per client asset, which outpaces that of Charles Schwab (NYSE:SCHW) by nearly tenfold. The observation was made that Robinhood’s comparable levels of trading activity per account, especially in options trading, are achieved with a considerably smaller average account size. This unique positioning has contributed to Robinhood’s impressive revenue growth of nearly 60% over the last twelve months, reaching $3.26 billion. According to InvestingPro analysis, the stock appears overvalued at current levels, trading at a P/E ratio of 31.8x.
O’Shaughnessy noted Robinhood’s unique position, generating approximately 200 basis points of revenue per average client asset, a figure that is about twenty times higher than that of Charles Schwab, which generates around 20 basis points per client asset. According to the analyst, this revenue generation capacity is critical as account growth seems to be a key driver for Robinhood’s future trading revenue. In contrast, asset growth is seen as a more significant factor for non-trading revenue. The company’s efficient revenue model has translated into strong profitability, with InvestingPro data showing net income of $1.59 billion and an impressive gross profit margin of 91%.
The analysis also pointed out that investment securities make up the majority of Robinhood’s client assets, typically yielding lower returns than spread-based assets. Despite this, Robinhood’s yield on client securities holdings, which includes cryptocurrencies, is over 1%. This is significantly higher compared to Schwab’s yield of less than 0.10%.
The commentary from Raymond James underscores the distinctive revenue model that Robinhood has cultivated, particularly in its ability to generate income from its clients’ assets. This model has positioned Robinhood differently from its competitors in the financial services industry, as the company continues to leverage high trading activity among its user base to drive revenue.
In other recent news, Robinhood Markets reported its first-quarter 2025 earnings, revealing a mixed financial performance. The company exceeded earnings per share expectations at $0.37, although revenue slightly missed estimates, coming in at $927 million. Despite this, Robinhood’s revenue showed a significant 50% increase year-over-year. Analyst Devin Ryan from JMP Securities maintained a Market Outperform rating with a $70 price target, citing Robinhood’s robust growth trajectory and profitability. Meanwhile, Needham analysts adjusted their price target for Robinhood to $58 from $62 but maintained a Buy rating, highlighting strong performance in options and equities trading. Robinhood’s strategic moves included a $322 million stock repurchase during the quarter and expanding its buyback program to $1.5 billion. The company also reported a notable increase in Gold card users, doubling to 200,000, and saw a 60% rise in net new deposits, reaching $18 billion for the quarter. These developments reflect Robinhood’s ongoing efforts to diversify and expand its offerings amidst broader market challenges.
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