Integration Of Bitstamp And Expansion Of Legend Will Tap Into Global Markets

Key Takeaways

• Innovative product launches like the Gold Card and Robinhood Legend suggest increased revenue potential and market differentiation through higher subscription and transaction volumes.
  
• Expanding into derivatives and international markets could significantly boost market share and open new revenue streams from both crypto and innovative asset classes.
  
• Regulatory and credit risks, market competition, and reliance on key products could threaten revenue and net margins amid evolving crypto market dynamics.

Catalysts

Operates financial services platform in the United States.

• The introduction and scaling of the Robinhood Gold Card, with its industry-leading rewards and innovative features, can potentially increase wallet share and drive subscription revenue, contributing to future revenue growth.
  
• The launch and rapid growth of Robinhood Legend, a new platform for active traders with $50 million annualized revenue, indicates increased transaction volumes and future revenue growth from enhanced trading products.
  
• Expanding the derivatives business, including futures and event contracts, presents new revenue streams and could significantly increase Robinhood's market share in innovative asset classes.
  
• The accelerated growth in Gold subscribers, surpassing 2.6 million with an attach rate over 10%, suggests a higher average revenue per user, indicating potential improvements in net margins and earnings.
  
• International expansion and the integration of Bitstamp provide opportunities to tap into global markets and institutional crypto trading, potentially driving significant increases in both revenue and market share.

Robinhood Markets Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Robinhood Markets's revenue will grow by 18.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 47.8% today to 35.9% in 3 years time.
• Analysts expect earnings to reach $1.8 billion (and earnings per share of $1.93) by about April 2028, up from $1.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.2 billion in earnings, and the most bearish expecting $1.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 42.5x on those 2028 earnings, up from 26.5x today. This future PE is greater than the current PE for the US Capital Markets industry at 25.7x.
• Analysts expect the number of shares outstanding to grow by 0.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.53%, as per the Simply Wall St company report.

Robinhood Markets Future Earnings Per Share Growth

Risks

• Regulatory developments and the need for more regulatory clarity, especially regarding crypto assets and innovative asset classes, could pose risks, potentially impacting revenue from new product lines like crypto and event contracts.
  
• The success of Robinhood's new products hinges on continued innovation and market positioning, which could be challenged by increasing competition and market changes, possibly affecting market share and revenue growth.
  
• Credit risk associated with Robinhood's Gold Card and lending products requires careful management; worsening credit conditions could lead to increased provisions for credit losses, impacting net margins.
  
• The dependence on crypto trading revenues and the uncertainties in crypto regulations and market dynamics might lead to fluctuating earnings, especially if larger competitors enter the space aggressively.
  
• High reliance on a few high-performing products (such as Robinhood Legend and Gold Card) poses a risk; any failure to maintain or grow these could significantly affect earnings contributions and net margins.

Valuation

• The analysts have a consensus price target of $66.077 for Robinhood Markets based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $105.0, and the most bearish reporting a price target of just $34.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.9 billion, earnings will come to $1.8 billion, and it would be trading on a PE ratio of 42.5x, assuming you use a discount rate of 7.5%.
• Given the current share price of $42.16, the analyst price target of $66.08 is 36.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.