Last week, I told you guys what to do for both META and AMZN. This week we have more earnings, specifically today I wanted to look at HOOD. Let’s just first take a quick glance at the company, Robinhood Markets. They’ve been expanding beyond stock trading into credit cards, retirement accounts, and other financial services. When the brokerage firm reports second-quarter earnings after the market close today, we’ll finally get the chance to get an idea on how those new efforts are doing.
Analysts are guessing the company will report pretty strong second quarter earnings growth, looking for earnings per share of 16 cents on revenue of $640 million. That compares with earnings of just 3 cents and revenue of $486 million for the second quarter of 2023.
We need to keep in mind that this earnings report lands at a very volatile moment right now in markets, with a sharp sell-off in equities earlier this week. Shares of Robinhood have dropped like a rock – 24% over the past month. This has erased quite a bit of the stock’s substantial run-up earlier this year. Still tho, the stock is still up 37% year to date compared with a 9.8% gain for the S&P 500.
I don’t know if anyone’s noticed but they’ve also expanded into credit cards and retirement accounts recently. HOOD currently has a budding subscription service and signaled that they might just move into wealth management. They also doubled down on cryptocurrency with its June acquisition of Bitstamp, a leading cryptocurrency exchange, for $200 million in cash.
A lot of people think that these efforts are the key to the firm’s future. Especially now that regulators have forced the company to dial back on some stupid features, such as digital confetti, that helped initially make it popular with regards like us. But from what I’ve read, analysts are pretty split on the stock. Many have it rated as a buy Buy, some as a Hold, and quite a few rating the stock as a Sell. At least, according to FactSet.
J.P. Morgan Securities analyst Kenneth B. Worthington wrote in a research note just a few days ago that the second-quarter environment was favorable for Robinhood, and monthly metrics through May signal higher equity, options, and crypto trading volumes. As Robinhood has leaned deeper in crypto, this guy actually thinks the stock is increasingly correlated with the price of Bitcoin in daily movements. He has given the stock a December 2024 price target of $16 a share, a little less than what it’s currently at.
I don’t believe Robinhood really has the innovation to climb higher this year, and with poor guidance, they might not do well with their earnings report today. And with that, I’m getting 8/9 16p for 0.61 a pop. When it comes to earnings, the stock moves on average about 10%, so with a drop this size, I expect 16p to do well. We can reduce the cost of this earning play by making a spread. Buying the 15p at the same exp cuts the price of the play by more than half but limits max gains.