Robinhood Needs to Grow Up in Order to Save HOOD Stock

A “Robinhood (NASDAQ:HOOD) stock” is one with bad fundamentals small investors buy anyway to squeeze shorts and “get the man.” It’s practically a synonym for a trade made by dumb money. Robinhood is also a Robinhood stock.

Since its first day’s close of $35.15 on July 5, 2021, shares are down 73%. In 2023 they’re up just 14%, and they’re down 5% in the last month. Why is that, and can management rescue investors?

A Closer Look at HOOD Stock

Robinhood is a trading platform. Its Bulgarian-American CEO, Vlad Tenev, was played by Romanian-American actor Sebastian Stan in the movie.

Tenev co-founded Robinhood in 2013 with Indian-American Baju Bhatt. He had built high-frequency trading platforms for New York financial institutions. It was a classic “fintech,” funding its growth through stock sales and borrowing money cheaply.

The Federal Reserve killed that business model. With money costing serious money, and with interest by small investors waning, Robinhood has a casino with limited action. The company still has 10.8 million accounts, and $89 billion under active management. But the average account is worth just $4,000. Its trading volume in crypto currencies has collapsed.

Analysts have turned lukewarm on HOOD stock, with 2 of 11 at Tipranks telling clients to sell, and just 3 saying buy. Traders at Stocktwits haven’t given up, however. One recently wrote “this is the bottom.”

Is This the Bottom for HOOD Stock?

Robinhood’s calling card is Robinhood Gold , a subscription feature offering 4.9% interest on cash. It also offers research and lower-interest margin accounts. Recently the company has added support for Individual Retirement Accounts and bought a credit card issuer called X1.

Here’s the big news. Robinhood has even made a little money. In the second quarter that came to $25 million, 3 cents per share, and revenue of $486 million. Robinhood next reports earnings on November 7. Analysts expect a loss of 8 cents.

Part of Robinhood’s problem is that rising interest rates and falling stocks have made investors cautious. Even industry leader Charles Schwab (NASDAQ:SCHW) is floundering, down 34% on the year.

A bigger problem is Robinhood’s reputation as a get rich quick marketplace. For millennials, the interest rate rise and the 2022 market are what the 2000 dot-com crash was for their parents. They are cats who were burned on a hot stove, and now won’t go near a cold one, either.

The Bottom Line

HOOD stock has what I call a “happily ever after” problem.

Its image is that of a brokerage for young, swashbuckling traders. But even young traders get older. Swashbuckling is a phase, like going to clubs. People get burned out by it, and clubbing goes out of fashion.

Robinhood stock could make a comeback if the trading mood changes. It does best in a market marked by greed, not fear. If interest rates start falling, it could pick up momentum.

But that would require it to find new blood among Generation Z, which does have great interest in trading stocks. Robinhood is popular among this group . It just can’t afford to burn them, as Millennials were burned.

With its stock trading at around 4.4 times revenue, and an operation that’s profitable, Robinhood does look attractive here. But the company, and its marketing, needs to grow-up if it’s to capitalize on the opportunity.

As of this writing, Dana Blankenhorn had a LONG positions in SCHW. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.cribe to his free Substack newsletter https://danafblankenhorn.substack.com/.