Summary Robinhood (HOOD) has surged over 270% YTD, driven by high trading activity, crypto expansion, and a growing millennial/Gen-Z user base. HOOD's revenue doubled, fueled by crypto and options trading, increased ARPU, and a scalable, high-margin business model with a strong balance sheet. Despite robust growth, the online brokerage industry is highly competitive, with low switching costs and uncertain long-term winners. HOOD is well-positioned for future growth, but the stock appears fully valued after its rally; prefer to wait for a more attractive entry point. Overview Robinhood ( HOOD ) is among the top S&P 500 performers in 2025 with a year-to-date return of over 270%. A lot of factors played in their favour to see this rally happen: 1) high trading activity in the context of a stock bull market, 2) aggressive expansion into crypto and various other financial products, 3) easing financial regulatory environment and 4) wealth transfer from older generations towards millennials and Gen-Z (the main customer base of the platform). All these are priced in, however, what’s not priced in is the industry becoming more crowded, with less predictable outcome in terms of who will command the brokerage/fintech industries. TRADINGVIEW Earnings Recap Several operational metrics provide insight into the current business operations of Robinhood. Funded customers are a key metric for the platform user engagement and it went up 10% year-over-year . The number got a boost from 1) the users of the acquired Bitstamp; 2) the dramatic increase in the number of products; and 3) the successful acquisition of users from competitive platforms. Company Presentation Total Platform Assets more than doubled with 119% growth year-over-year, driven by two factors: 1) the old and newly onboarded users bring more assets in; 2) the valuations of the assets went up due to the bull market. Company Presentation Average Revenue Per User (ARPU) increased 82% year-over-year to $191, mostly due to higher trading activities of crypto and event contracts. Robinhood Gold Subscribers increased to 3.88m in Q3. Here, Robinhood provides certain perks for traders in exchange for a monthly fee of roughly $5 or $50 per year. With this, the company aims to tie users to its platform and secure a stable source of revenue. Moreover, Gold accounts trade 3-5 times more than non-Gold accounts. Company Presentation All these factors above contribute to the revenue growth of 100%. The fact that the revenue grew at a much higher rate than the funded customers shows that HOOD is aggressively expanding its products within its customer base. The transaction-based revenue is the main segment of the company. Unlike the traditional brokerage model, where the broker charges the traders, HOOD uses the “Payment for order flow” model, where the market makers pay HOOD, so HOOD directs them the trade flow and executes the trade. This helps users avoid paying extra commission fees. As we can see from the graph below, options are the most dominant asset class that is traded, but in the recent quarters, we saw the quick ramp-up of crypto (which can also be quite volatile). Equities are also traded, but to a much lesser extent.For Q3 , the transaction revenue was +129%, primarily driven by crypto trading. Options trading increases at a slower rate at +50% (if we can actually call this slow), but the trend here is more gradual and stable, unlike crypto revenue, which is way more volatile. The “others” section, which includes the even contracts, increased nearly four times. Company Presentation The interest revenue is generated from a variety of services, including margin interest, interest on cash, cash sweep, and securities lending. It is more stable than the transaction-based revenue. This quarter, the segment revenue grew 66% year-over-year, driven by higher margin lending and interest on cash from gold accounts. Company Presentation Hood EBITDA margin currently stands at 58% improving sequentially from previous quarters. The main point here is that this business model is easily scalable, as the two most significant expenses - R&D and G&A are rather fixed. Also, the growing crypto trading and event contracts are generally high-margin. Company Presentation The balance sheet is strong with $4 billion of cash (that excludes client assets) and no debt. Client money, which is segregated, went up from $4.72 billion at the 2024 year-end to $8.44 billion in Q3. The company continues to repurchase its own stock, with $107 million repurchased last quarter. Company Filings What’s next - New Products In some ways, the business model of Robinhood (and peers) resembles the business model of the e-commerce firms like Amazon, Alibaba or the ride-hailing companies like Uber, Grab and Didi, where the most important metric is the number of users on the platform. With more users, there will be a stronger network effect, economies of scale and more negotiating power against suppliers (in the case of HOOD – the market makers). In order to achieve these network effects, Robinhood has to actively introduce new features on its platform to attract more users and create an ecosystem which will disincentivize users from jumping to other platforms. Currently, Robinhood is focusing its efforts on the expansion of different products within its platform: That includes tokenization, staking (owners holding crypto and earn interest on them), Robinhood Legend(enhanced Desktop/mobile platform), Prediction Markets(event Contracts, betting on real-world outcomes, outside of markets), robo-advisory, social app, banking services and others. However, as HOOD is expanding horizontally through different business lines, they will imminently face competition. Competitive Landscape The online brokerage industry is quite crowded, mostly because the opportunities here are lucrative (more people trade than ever before and also the inter-generational wealth transfer), and also because it’s not hard to create such an app from scratch (the barriers of entry are low). Overall, the industry is still at an early stage, and that also means more intense competition. In fact, everything we mentioned in the previous section, like tokenization, prediction market, etc, is also being developed by other competitors too, and sooner or later we will see a market where players overlap a lot in terms of business operations and that can lead to intense (even irrational) competition. But which are the competitors, and how does Robinhood differentiate from them? We have players like Charles Schwab and Interactive Brokers; we also have crypto marketplaces like Coinbase and Binance. There are also regional leaders like Revolut, Futu and WeBull. Charles Schwab, Fidelity and Vanguard are much larger in scale, over 40-50 million accounts each. Their users are much older, 30-40-50 yo, versus the Gen-Z user base of Hood. And the average account size for them is above $100,000 USD , while for Robinhood, it is less than $5,000. We believe these differences will likely prevent an outflow of Robinhood users towards these platforms. Apart from these giants, Robinhood's user base can be considered relatively large, which is already a good advantage, and most importantly, they are still gaining market share when it comes to equities and options. However, we also have emerging players like SoFi that already have established banking services, and they can leverage them when venturing into trading. Company Filings On the crypto front, there are five dominant platforms, such as Coinbase, Binance, Kraken and Crypto.com , with HOOD catching up quickly there, as well. The main advantage for them is that among these, only HOOD is a multi-asset, and the rest are pure crypto platforms, providing an edge for users to trade both crypto and traditional assets. This gives an advantage to HOOD, especially in its ambitions to become the main trading ecosystem. To sum up, the names mentioned are some of the few in the industry. HOOD already has achieved certain advantages with its multi-asset platform, relatively high user base and aggressive product expansion. However, the intense competition will make it hard to predict who will be the final winner. And to further emphasize the unpredictability, the moat in the sector is generally less obvious. Firstly, because creating such business from scratch is not particularly complex and secondly, it is not hard for a user to switch one platform with another (account opening is already simple enough, just a KYC questionnaire). A summary table of the competitors below: Company Number of Users Average Account Size Platform Type Robinhood 26.8mn Small Multi-asset Charles Schwab 40-50mn Large Traditional Brokerage Fidelity 40-50mn Large Traditional Brokerage Vanguard 40-50mn Large Traditional Brokerage Coinbase 120mn Small Crypto Only Binance 250mn registered Small Crypto Only Kraken 2.5mn funded accounts Small Crypto Only Crypto.com 100mn Small Crypto Only SoFi 12.6mn Small Banking+Trading Risks As we see the complex competitive environment in the industry, we believe that is the main risk for the stock. The number of funded customers has been growing, as seen from the recent data, but if we see a stall or decrease in customers, the stock may take a massive hit. Company Presentation Second, if a bear market comes, it will bring a lower number of transactions. This will have a negative impact on the transaction-based revenue within both options and crypto. We already saw how crypto-related revenue can fluctuate dramatically. Other macro risks include interest rates changes, as well as consumer spending and savings. Third, we have the usual regulatory risks. Options and crypto are complex and volatile products and may be subject to regulations. Also, the PFOF business model draws criticism from some regulatory voices as it is prone to conflict of interest - online brokers might route orders to whichever market maker pays the most, not the one that offers the best execution. Valuation We believe HOOD, with its multi-asset platform and brands that appeal to the young, is well-positioned for the future to grab more users and market share. However, in the short term, the overall online brokerage industry is becoming too intense and unpredictable. HOOD has already rallied a lot this year, and the current forward PE is not as attractive anymore. We still believe HOOD has an edge, but we will be looking for more attractive price. Ticker Forward PE HOOD 54.05 COIN 39.84 SCHW 16.34 IBKR 25.97 SOFI 47.85 Conclusion HOOD is doing the right thing by venturing into other business verticals like prediction markets, robo-advisory, and tokenization. The problem is that the industry is not mature yet and without strong moats (apart from users). The market is yet to price this. Additionally, the current trading activity is at its peak, and we will imminently see lower amount of transactions at some point in time.
