Financial trading platform Robinhood (NASDAQ: HOOD) is down 75% since its much-hyped IPO last summer. Still, high-profile investors see the company’s value as it increases its appeal to young retail investors with further forays into cryptocurrency.
Sam Bankman-Fried, the founder and CEO of crypto exchange FTX, has a 7.6% stake in HOOD — stakes worth more than half a billion dollars. Despite the company’s recent troubles, should you follow Bankman-Fried and bet on HOOD’s long-term future?
Memes, pandemic demand, and declining users
Robinhood went public last summer amid a wave of excitement. With an initial public offering of $38 per share, the stock soared to an all-time high of $85 shortly thereafter, fueled in part by some of the meme dynamics that made the trading platform so popular with retailers in the first place.
Even before its public debut, HOOD was famous (or maybe notorious) on Wall Street for fueling the craze around meme stocks, which saw a surge in names like Gamestop (GME) and AMC (AMC). However, the trading platform has also been criticized for its handling of the GME trading spike in early 2021, when the company decided to limit some trading amid immense volatility.
HOOD’s initial post-IPO surge quickly fizzled out as the stock trended lower for most of the rest of the year and into 2022. The stock hit its all-time low of $7.71 in mid-May and has hovered above that level ever since.
On Wednesday’s intraday action, HOOD was at $9.30, down about 50% since the end of 2021. The stock is down nearly 90% from its peak and is more than 75% below its IPO price.
Much of the recent decline is due to concerns that HOOD’s growth rate will continue to deteriorate from its pandemic highs. This follows a general loss of confidence in the fintech sector, which has received a boost from stimulus checks and a lack of other distractions during COVID.
This concern was highlighted by HOOD’s latest earnings report. Figures released in late April indicated lower than expected results, including a drop in the number of users.
The company’s revenue for the first quarter decreased to $357 million compared to $522 million for the same period last year. Monthly active users also declined, falling to 15.9 million compared to 17.3 million at the end of the fourth quarter.
Given its weak financial position, HOOD has attempted to cut costs. On the way to its earnings announcement, the company said it had decided to cut its full-time workforce by 9%.
Is HOOD a purchase?
Bankman-Fried’s investment in HOOD has sparked speculation of a possible merger with FTX (FTT-USD). However, the crypto billionaire has reportedly not discussed the matter with HOOD (at least since mid-May).
Meanwhile, HOOD CEO Vlad Tenev has dodged questions about whether Bankman-Fried had discussed his investment before buying the large stake.
Looking at Wall Street as a whole, enthusiasm for the stock has been muted. HOOD has its defenders with four Strong Buy ratings and one Buy rating.
However, a full two-thirds of the Wall Street community has a neutral to negative stance on the stock. Of the 15 analysts surveyed by Seeking Alpha, seven give HOOD a hold rating. Another three classify stocks as outright sales.
To learn more about the bearish case for HOOD, read a deep dive from Seeking Alpha contributor Michael Wiggins De Oliveira who simply says, “Don’t buy that.” On the other end of the spectrum, Gary Alexander, also an SA employee, sees long-term value in the stock.
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