Following Robinhood's nearly 12% stock drop after missing its Q1 earnings and revenue estimates, major investors like Cathie Wood's Ark Invest are capitalizing on the opportunity. Ark Invest purchased approximately $39.7 million worth of shares, demonstrating confidence in the platform's future. The investment firm views Robinhood as a significant holding across its portfolios, accounting for around 3% of its assets. Wall Street analysts share a similar sentiment, attributing the earnings miss to market conditions rather than core business issues.
They point to early April data, which suggests improving momentum, with equity and options trading volumes trending toward their strongest levels this year. This could potentially offset the ongoing softness in crypto trading. Cantor Fitzgerald has reaffirmed its 'Overweight' rating and $110 price target, citing stabilization in recent activity.
The firm notes that preliminary April equity and option trading volumes are on track to reach the highest monthly level this year. Compass Point has also maintained its 'Buy' rating, albeit with a slightly lower price target of $107, stating that the market reaction appears to be focused on past performance rather than future expectations. However, some analysts caution that risks persist, particularly in crypto trading, which may continue to weigh on results in the near term due to lower volumes and pricing pressure. Investment bank Keefe, Bruyette & Woods has cut its price target to $65, citing concerns over declining transaction fees.
The firm's analysts warn that this trend may persist, leading to lower long-term forecasts. In contrast, Bernstein's analysts remain bullish, maintaining their 'Outperform' rating and $130 price target. They point to signs of stabilizing crypto activity and strong equities and options performance.
Beyond trading, investors are now focusing on new revenue streams, including prediction markets. The anticipated launch of Robinhood's prediction markets platform, Rothera, is seen as a potential driver of future revenue and margin expansion.
The outlook for Robinhood hinges on whether the recent gains in trading activity can be sustained. If they can, the company may return to growth sooner than expected. However, if not, pressure on transaction revenue may persist into the second half of the year.
On Thursday, the stock rose about 3%, but it has fallen approximately 37% this year. In comparison, Coinbase, a crypto peer, rose about 3% on the day and is down around 19% year-to-date.