39% Of This Firm’s Net Worth Is Cash

With a market capitalization of $12.2 billion and $4.8 billion of cash on the balance sheet, Robinhood poses an intriguing value proposition for investors.

During its glory days of 2021, Robinhood shares soared close to $60 per share. That was a time when Cathie Wood of ARK Invest was enjoying enormous success with her funds tied to the theme of disruptive innovation. 

Since then Wood’s ARK Invest has ranked as one of the worst performers on the Street according to Morningstar, and Robinhood share price has fallen to the low teens.

While the share price has declined dramatically, other metrics have shone ever more brightly. So what does the future hold for Robinhood and can it springboard to success on the back of a huge cash pile?

Robinhood Is Starting To Look Good

Avid trend followers may glance at a Robinhood stock chart and be thoroughly unimpressed. If anything the stock looks to be forming a multi-year base and continues to bump its head against resistance levels.

Under the surface, however, is an ever more impressive fundamental performance that is exemplified by the growth in top line revenues.

Consider first how dismal 2022 revenues were and you will see why HOOD share price fell out of favor. The four quarters year-over-year revenue growth rates came in as follows:

  • Q1 2022: -42.7%
  • Q2 2022: -43.7%
  • Q3 2022: -1.1%
  • Q4 2022: 4.7%

Clearly Wall Street was unimpressed and sent the share price tumbling all the way to $7 and change per share. 

But then the market turned in 2023 and the S&P 500’s share price decline of 20% in 2022 transitioned to a 24.7% rally in 2023.

The rising tide of the market supported Robinhood revenues that rose dramatically on a year-over-year basis as follows:

  • Q1 2023: 47.5%
  • Q2 2023: 52.8%
  • Q3 2023: 29.4%
  • Q4 2023: 23.9%

For the full fiscal year of 2023, revenues rose to $1.86 billion versus $1.35 billion in 2022. Better still, they rivaled the figure from 2021, the most stellar year for Robinhood.

The history of revenue growth has been stunning with 2022 as the standout exception. The fiscal year annual top line figures have been reported as:

  • 2019: $277.5 million
  • 2020; $958 million
  • 2021: $1.85 billion
  • 2022: $1.35 billion
  • 2023: $1.86 billion

The furore around short interest stocks and meme stocks from 2021 led to an enormous spike in revenues but notably 2023 resulted in even higher revenues, if only marginally. That bodes well for Robinhood’s future.

Less impressive, however, has been the bottom line. Net income last year was reported at -$533 million. The bears point to this figure as being highly concerning while bulls note that it is a vast improvement over 2021’s $3.6 billion loss and 2022’s $1.0 billion loss.

So with revenues rising and losses falling, what does the future look like? Will it bounce back and is Robinhood a good investment?

Will Robinhood Stock Recover?

According to the consensus estimate of 13 analysts, Robinhood stock is unlikely to recover much further because fair value is $13.87 per share.

One aspect of Robinhood that makes it challenging to value is the sustained lack of profitability. Jeff Bezos was frequently critiqued in the past at Amazon for reporting rising sales but virtually no profits year after year.

He argued that profitability was less a concern because capital was being invested in the business to build a scalable firm with a competitive advantage. The thesis proved highly successful in retrospect. And Bezos at the time pointed to the key metric being free cash flows, not profitability.

If the same argument were made about Robinhood, what do its free cash flows look like?

It turns out they are looking much better than they had been in the past. While levered FCF was highly negative in 2021 and 2022, coming in at -$948 million and -$880 million respectively, the most recent year saw a sharp turnaround with $1.1 billion of positive FCF.

For bullish oriented investors, that is the number to cling onto in the hopes that it will spark a resurgence in the share price.

Another reason to be positive is the enormous cash pile that Robinhood sits on. It holds $4.8 billion of cash on the books now, and better yet, has no long-term debt to speak of.

So while the company has not been profitable over the past year, net income is trending in the right direction and free cash flow is remarkably strong.

Robinhood Technical View

From a technical standpoint, there is reason to be optimistic too. The stock chart appears to be forming a long-term base and is increasingly looking coiled and ready to spring higher.

Arguably, the most recent price action has signaled a bullish breakout already.

hood technical chart

Source: TradingView

So what does it all boil down to? What does the future price look like for Robinhood?

Is Robinhood Stock a Buy?

Robinhood stock holds promise for both fundamental investors and technical chartists now. Fundamentally, the income statement has been strengthening with revenues rising dramatically year-over-year and losses shrinking substantially.

Technically, the stock appears to be breaking out of a multi-year base and is poised to move higher in the coming months.

On the other hand, skeptics can point to the technically overbought levels technically that suggest a near-term pullback is warranted.

And bears can also cite concerns over how tethered Robinhood is to market performance. When the S&P 500 fell in 2022, so too did HOOD revenues fall sharply. And when the S&P 500 rallied in 2023, revenues surged in tandem.

If Robinhood is so connected to the performance of the market, it bodes well for the share price long-term but it also may leave investors skittish about its prospects near-term.

Still, with a large cash pile and having just reported its largest fiscal year revenues yet, the future looks bright for Robinhood and new investors may well be buying a stock on the cusp of a material technical breakout.

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