Robin Hood (NASDAQ: BELL) has seen its shares rise from summer season lows of $7 a share as buyers imagine Robinhood’s restructuring plan will probably be sufficient to proper this ship.
Nevertheless, I’m nonetheless bearish.
me believes that the current downward strikes in crypto will additional weigh on investor urge for food to commerce on the Robinhood platform. That is opposite to Robinhood. current remark.
As Robinhood brokerage purchasers have fewer crypto transactions, this can result in weaker earnings within the quick time period, resulting in analyst estimates not being met in Robinhood’s This fall 2022.
In brief, keep away from this title.
Robinhood August figures, this is the excellent news
For the month of August, Robinhood’s cumulative web deposits elevated 26% y/y. This coincided with the market rallying from the summer season lows.
As a proxy for retail curiosity in shares, I’ve used ARK (ARKK). As you’ll be able to see above, from early July to mid-August, ARKK surged 50% throughout these two months earlier than promoting off on the finish of August.
So I believe it’s totally constructive for Robinhood’s Q3 outcomes. And that led to a short-term bounce in HOOD as buyers seemed to purchase the draw back on this title.
However I do not assume that is a long-lasting worth on this current outburst.
I believe the current rise in its share value will quickly subside as buyers look past the third quarter and into the fourth quarter of 2022.
Robinhood’s This fall outcomes will probably be weak
As you’ll be able to see above, in This fall 2020, roughly two years in the past, Robinhood’s crypto income was largely insignificant as a proportion of whole income.
And after we examine Robinhood’s publicity to crypto in This fall 2021, $48 million of its $264 million in whole income was derived from cryptocurrency income (see slide 24).
Consequently, with the cryptocurrency market persevering with to development down, there’s important threat to Robinhood’s This fall earnings.
Consequently, I believe it is extremely possible that as Robinhood enters This fall 2022 subsequent month, Robinhood’s cryptocurrency income will decline such that This fall 2022 will report lower than $30 million in income within the trimester.
So when Robinhood reviews its This fall 2022 ends in early 2023, buyers are in for a detrimental shock.
HOOD Inventory Valuation – Earnings 6x 2022
Robinhood continues to be priced at 6x this 12 months’s income. With this market changing into more and more selective as to the place the worth is, I do not assume paying 6x this 12 months’s income for Robinhood, a enterprise with such low visibility, is an effective funding.
After I take a look at my totally different out there alternatives, I see numerous high-quality long-distance offers with 6 instances the asking value.
For instance, inside enterprise software program or cybersecurity corporations, there are a lot of corporations which have many Fortune 500 corporations as prospects. Not retail buyers dealing with a price of dwelling disaster.
Moreover, these enticing companies are rising at a fast price and are already worthwhile or have a transparent path to profitability. And they’re priced at 6x gross sales!
So why would buyers threat paying 6x extra for Robinhood gross sales?
Truthfully, I believe it is an funding with a poor risk-reward profile.
The underside line
Since Robinhood went public, it appears to have gone by way of one tough patch after one other. As we enter a “new bear market,” I discover it laborious to be optimistic in regards to the prospects for this firm.
Specifically, I focus my bearish funding thesis not a lot on Robinhood’s Q3 2022 outcomes, which I imagine, as mentioned above, may positively shock the funding neighborhood, however on Robinhood’s This fall 2022, after I imagine that investor urge for food for buying and selling cryptocurrencies on the Robinhood platform might be considerably decreased.
Regardless that the inventory value is down so considerably, by greater than 70% since its preliminary public providing, I nonetheless discover little worth on supply for brand spanking new buyers coming into these shares.