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Should I Invest in Robinhood Stock?

Learn everything you need to know about Robinhood stock and whether it would make a profitable addition to your portfolio. We answer the burning questions about what makes Robinhood special, the reasons why you should buy, and the risks that could dissuade you from making the purchase.

Robinhood Markets, Inc.
company nameRobinhood Markets, Inc.
sectorTechnology
industrySoftware—Infrastructure
address85 Willow Road, Menlo Park, CA, United States
countryUnited States
websitehttp://www.robinhood.com

Robinhood is a stock with high growth potential and a strong brand presence with retail investors. Although its revenue and customer base are rising at rapid levels between 2020 and 2021, it is wise to proceed with caution because of pending regulation and market volatility for its bottom line.

It is essential to analyze both the positive and negative risks associated with the stock, however. Robinhood’s brand has a massive enough foothold to offer more services and value to its existing customer base.

If the market appreciates into the distant future, this means good things for Robinhood. However, regulatory threats and volatility could put a damper on profits.

Below we answer the critical questions you need to know when deciding to buy the Robinhood stock.

Best trading app to buy Robinhood stock
Robinhood App
Robinhood icon

Quick Summary

Account Minimum: $0

Fees: $0 per trade

Promotion: Get 1 free stock with a $100 deposit

About Robinhood

Robinhood Markets (HOOD) is a financial services platform geared toward newcomer investors. It pioneered an innovative commission-free platform for stock trading with fractional share purchasing, no account minimums, and an intuitive platform for all.

Robinhood also enables its users to trade cryptocurrencies, and it demands little research beyond what other customers are trading.

The ease of use and simplicity of the app is what makes it an attractive solution for beginner investors. For a little upfront cost, retail investors can utilize the platform to engage with the market directly.

Benefits of the Platform

  • The platform is straightforward to use (mobile app and online usage available)
  • Customers can access deposited cash instantly
  • Trading costs are minimal
  • Customers can trade cryptocurrencies in smaller quantities
  • Commission-free trading
  • The platform provides high-level pros and cons of each stock

Drawbacks of the Platform

  • Price quotes are not streamlined, and they may lag the real-time stock data
  • Newer investors who wish to enhance their trading skills will become bored with the platform
  • Trades are routed to produce payment for order flow and not the optimal price for the customer

Bull Case

Although Robinhood experienced negative PR setbacks, its brand continues to perform well. Here are several reasons why you should invest in Robinhood today.

  • Growth is consistent: despite regulatory penalty hiccups with the trading platform in 2020, the number of user accounts increased by 143% to 12.5 million. Revenue also grew by 245%, and this trend continued into the first quarter of 2021.
  • High-profit margin potential: because the platform gains new users at a minimal cost, the profit margins could be massive. Robinhood’s revenue sources are also cost-effective because of order flow payment and trade routing to larger platforms like Citadel Securities.
  • Robinhood’s brand is powerful: the public quickly forgot about its platform malfunctions, trading restrictions on meme stocks like GameStop and AMC Entertainment, and promoting the “gambling” side of investing. As of March 2021, over 80% of new accounts on the platform came from referrals. Also, approximately 50% of new retail trading accounts started in the United States between 2016 and 2021 were opened on Robinhood.
  • Founders still run the company: based on the historical success of Amazon and Tesla, founder-run companies tend to outperform expectations. Because the founders are still operating the company, this is a good indication that business growth is more important than money.
  • High growth potential: Robinhood built a strong customer base with the younger demographic, the people who are in the beginning stages of their financial journey. As these customers mature and crave more products like credit cards, car loans, and financial advice, the Robinhood platform will effectively satisfy that need.
  • The founders are strategic and creative thinkers: Although Robinhood expresses a “democratized” finance realm for everybody, this is not exactly how decision-making works. Because it has special share classes set up, the voting power is concentrated within a small collection of people. This system may sound like a negative quality, but it will allow decisions to be made quickly and efficiently, and it will provide management the capability to strategize long-term.

Bear Case

Before you make your investment decision, it is essential to understand the grave risks with the stock. Here is a summary of the threats and negative aspects of Robinhood stock:

  • Regulation: Regulators and politicians have a close eye on Robinhood because of how simple the platform makes it for regular customers to engage with the market. These external stakeholders fear that the platform could lead to excessive gamification and trading, which may not be in the best interest of its people. The FINRA already handed out a $70 million fine for overextending options trading to non-qualified account holders.
  • The retail trading movement fizzles out: retail trading is the engine behind Robinhood. Much of the Robinhood customers made profits on crypto and meme stocks. However, if these returns fade for the account holders, the revenues will halt for the Robinhood. 38% of its revenue in the first quarter of 2021 came from options trading, which is a vulnerable percentage compared to traditional brokerage. A market downturn would spell doom for Robinhood.
  • Cryptocurrency market destruction: Robinhood is also prone to excess losses from a crypto market blowup. 17% of its first-quarter revenue in 2021 came from cryptocurrencies.
  • A severe bear market slows (or eliminates) revenue: It is a strong possibility that Robinhood strategically went public during a hot first quarter for the market. According to Kennedy at Renaissance Capital, the first quarter brought in the highest amount of proceeds for IPOs since the fourth quarter of 1999. If another crash occurs, much as it did in 2000, Robinhood could be in for a world of hurt.

Robinhood Competitors

CCoinbase Global, Inc.
$243.21
SymbolCOIN
Price$243.21
Change$3.86
Change %1.56%
Volume$2,588,968.00
Marketcap63.70B
VVOYAGER DIGITAL LTD
$12.50
SymbolVYGVF
Price$12.50
Change$0.6500
Change %5.49%
Volume$392,783.00
Marketcap1.81B
FFinTech Acquisition Corp. V
$10.30
SymbolFTCV
Price$10.30
Change$0.1200
Change %1.18%
Volume$257,164.00
Marketcap352.12M

Final Verdict

Robinhood provides a reliable case for financial performance within its S-1 filing, which indicates rapid growth from 2020 to 2021. If the retail investing boom persists, then the “democratized finance” model will thrive for Robinhood and its shareholders.

Although the top pundits like Charlie Munger call Robinhood a “gambling parlor,” it does provide a beginner’s stage for new investors.

Because of the pending regulations and the cutthroat landscape for brokerages, it would be wise for investors to proceed with caution. It would be best to hold off for the post-IPO hype to wear off before making an educated purchase decision with the Robinhood stock.

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