On Thursday, Deutsche Bank adjusted its outlook on Robinhood Markets (NASDAQ:HOOD), increasing the share price target to $16 from $12 while maintaining a Hold rating. The revision follows Robinhood's positive transaction revenue outlook based on its February metrics report, which Deutsche Bank found to be relatively good overall.
The report highlighted a notable increase in notional trading volumes across all asset classes compared to January, with equities volumes showing an especially strong performance at $80.9 billion in February.
This uptrend surpassed the bank's initial estimates for the first quarter. Despite a slight decrease in net deposits to $3.6 billion from January's $3.8 billion, the annualized growth rate remained robust at 42%. Additionally, Gold cash sweep balances saw a healthy month-over-month increase of $1.3 billion, aligning closely with the bank's first-quarter projections.
Robinhood also experienced growth in several key areas during February, including the number of funded customers, the volume of margin loans, assets under custody (AUC), and monthly securities lending revenues. Post-release of the metrics, Robinhood's investor relations team conveyed a positive stance on the growth trajectory for trading volumes across all asset classes, attributing this to increased engagement from retail traders.
The bank also noted that Robinhood's cryptocurrency trading volumes are moving in tandem with industry trends, which generally follow cryptocurrency price movements. Robinhood's crypto average daily volumes grew by approximately 15% month-over-month in February, closely mirroring the industry's 13% increase.
Given that the industry's average daily volumes for crypto have surged by over 90% in March up to March 12 compared to February, Deutsche Bank anticipates a favorable environment for transaction revenues in the first quarter.
As a result of these positive trends, Deutsche Bank has raised its transaction revenue estimate by 16%, including a 27% increase for cryptocurrency transaction revenue. Expectations for continued strong volume trends into the second quarter, particularly for cryptocurrency, have led to an increase in annual earnings per share (EPS) estimates by 25-30%.
Despite the price target uplift, the bank cautions that the volume outlook, especially for cryptocurrency, is subject to volatility, and reaffirms its Hold rating on Robinhood shares.
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