Where Will Robinhood Markets' Stock Be in 3 Years?

Source The Motley Fool

Robinhood Markets (NASDAQ: HOOD), the online brokerage that popularized commission-free trading, went public in July 2021 at $38 a share. Its stock hit an all-time high of $70.29 less than a week later, but it dropped below $7 by the following June.

Robinhood's stock plummeted as rising interest rates curbed the market's appetite for the higher-risk stocks, options, and cryptocurrencies that have driven most of its growth during the pandemic. However, its stock recovered over the following two years as interest rates peaked and investors poured more cash back into its platform.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

A parent holds a baby while trading stocks.

Image source: Getty Images.

Robinhood's stock trades at about $36 as of this writing, which marks a five-bagger gain from its all-time low but still falls shy of its IPO price. Let's take a fresh look at its business and see where its stock might head over the next three years.

What happened to Robinhood over the past few years?

Robinhood's growth accelerated during the pandemic as social media buzz, stimulus checks, and a fear of missing out (FOMO) brought a stampede of investors to its commission-free trading platform. That buying frenzy, which lasted throughout most of 2020 and 2021, drove many meme stocks to their all-time highs. Robinhood went public near the peak of that buying frenzy.

But in 2022, its growth in funded customers nearly stalled out, its number of monthly active users (MAUs) plummeted, and its assets under custody (AUC) shriveled as it attracted fewer net deposits during the market downturn. That decline can be largely attributed to rising interest rates, which chilled the market and drove investors toward more conservative investments. But in 2023 and 2024, its business stabilized with the broader market as investors focused on future interest rate cuts.

Metric

2020

2021

2022

2023

9 months of 2024

Funded customers (in millions)

12.5

22.7

23

23.4

24.3

MAUs (in millions)

11.7

17.3

11.4

10.9

11

AUC (in billions)

$63

$98

$62

$103

$152

Data source: Robinhood.

Its MAUs remain below its pandemic-era peak, but its annualized average revenue per user (ARPU) rose 31% year over year to $105 in the third quarter of 2024. That's only slightly lower than its peak APRU of $115 back in the second quarter of 2020.

That growth was fueled by the market's recovery and the expansion of its subscription-based Gold plan, which provides higher interest rates on uninvested cash, bonuses on taxable deposits and IRA contributions, bigger instant deposits, lower margin rates, access to Level II trading data, and other perks. Its number of Gold subscribers jumped 65% year over year to 2.2 million in the third quarter of 2024.

Robinhood also turned profitable on a generally accepted accounting principles (GAAP) basis in the first nine months of 2024 as it cut costs and reined in its stock-based compensation. It even launched a $1 billion buyback plan earlier this year.

What's next for Robinhood?

Robinhood still faces stiff competition from traditional brokerages like Charles Schwab (NYSE: SCHW) and Morgan Stanley's (NYSE: MS) E*Trade, which pivoted toward commission-free stock trades over the past few years. It also still generated 80% of its transaction revenue from riskier options and crypto trades instead of equities in its latest quarter, and that mix could exacerbate its volatility during a market downturn.

Yet Robinhood's growth in funded customers remains stable, it's locking in more of its active users into its Gold plans, and it's increasing the stickiness of its ecosystem with more cash management and digital payment services. It's also tethering more users to its Robinhood Cash Card, a debit card that runs on Mastercard's (NYSE: MA) payment network and provides cashback rewards with automatic investments.

If the Fed continues to cut rates, investors will likely pour more cash into Robinhood and place more trades. However, the Federal Reserve recently projected it would make fewer rate cuts in 2025 unless inflation finally cooled off -- and that pressure could chill the market again and throttle Robinhood's growth over the next three years.

Where will Robinhood's stock be in three years?

From 2023 to 2026, analysts expect Robinhood's revenue to grow at a compound annual growth rate (CAGR) of 22%. On the bottom line, they expect it to stay profitable in 2024 and grow its net income at a CAGR of 8% over the following two years.

Those growth rates seem steady, but they might disappoint investors who had hoped for an acceleration to its pandemic-era levels again. Its stock also isn't a screaming bargain at 42 times next year's earnings. Assuming it matches Wall Street's estimates, continues to grow its earnings per share at a CAGR of 8% from 2026 to 2028, and still trades at 40 times forward earnings, its stock could potentially rise nearly 20% over the next three years.

That's a decent three-year gain, but it might not be worth the near-term risk. Investors can likely net similar gains with more conservative stocks, and Robinhood's stock could easily be cut in half again if the market crashes and crushes its valuations.

Should you invest $1,000 in Robinhood Markets right now?

Before you buy stock in Robinhood Markets, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Robinhood Markets wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $825,513!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of December 16, 2024

Charles Schwab is an advertising partner of Motley Fool Money. Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard. The Motley Fool recommends Charles Schwab and recommends the following options: long January 2025 $370 calls on Mastercard, short December 2024 $67.50 calls on Charles Schwab, and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
US Dollar hits fresh two-year high ahead of PCE inflationThe US Dollar (USD) retreats slightly on Friday, with the DXY Index trading at around 108.20 after eking out another fresh two-year high of 108.55 during the Asian-Pacific trading session. The move was supported by rising US Treasury yields, widening
Author  FXStreet
Dec 20, Fri
The US Dollar (USD) retreats slightly on Friday, with the DXY Index trading at around 108.20 after eking out another fresh two-year high of 108.55 during the Asian-Pacific trading session. The move was supported by rising US Treasury yields, widening
placeholder
American Express: Buy, Sell, or Hold?American Express (NYSE: AXP) shares have been on an absolute tear. In the past 14 months, they have catapulted 100% higher (as of Dec. 16), consistently hitting fresh all-time high
Author  The Motley Fool
Dec 20, Fri
American Express (NYSE: AXP) shares have been on an absolute tear. In the past 14 months, they have catapulted 100% higher (as of Dec. 16), consistently hitting fresh all-time high
placeholder
USD/JPY dips to test a previous top at 156.60 following hot Japanese inflationThe Yen is picking up from five-month lows on Friday, supported by a somewhat softer US Dollar and hot Japanese inflation figures.
Author  FXStreet
Dec 20, Fri
The Yen is picking up from five-month lows on Friday, supported by a somewhat softer US Dollar and hot Japanese inflation figures.
placeholder
Solana whale sbfonchain.sol is back to buying the hottest meme tokensOne of the most widely watched meme token traders, sbfonchain.sol, is back to buying.
Author  Cryptopolitan
Dec 20, Fri
One of the most widely watched meme token traders, sbfonchain.sol, is back to buying.
placeholder
Crude Oil set for weekly loss as Fed cuts off any rally attemptOil prices saw recovery attempts fail and edges lower for the fifth consecutive day on Friday.
Author  FXStreet
Dec 20, Fri
Oil prices saw recovery attempts fail and edges lower for the fifth consecutive day on Friday.
goTop
quote