Robinhood Stock Looks Reasonably Valued Ahead of Earnings Report

Robinhood's stock has skyrocketed over the past year, rising more than 350% in the last 12 months. The company's growth trajectory has been impressive, with its number of funded customers doubling from 2020 to 2024 and its assets under custody (AUC) tripling during the same period. Its revenue grew at a robust compound annual growth rate (CAGR) of 32.5% over this time frame.

Despite some investors' reluctance to invest in Robinhood after such massive gains, the company still looks reasonably valued relative to its growth potential. In fact, analysts expect Robinhood's revenue to grow at a CAGR of 18% from 2024 to 2027, with its adjusted EBITDA rising at a CAGR of 23%. This suggests that the current bull market could generate strong tailwinds for Robinhood's business.

Reasons Why Robinhood Stock Is a Buy

There are several reasons why Robinhood stock is worth considering ahead of its next earnings report on July 30. Here are six key points to consider:

1. Rapid Expansion and Economies of Scale

From 2020 to 2024, Robinhood more than doubled its number of funded customers, while its assets under custody (AUC) more than tripled. Its revenue grew at a robust CAGR of 32.5% over this time frame. The company's expansion was driven by its payment for order flow (PFOF) model, which attracted scrutiny from the Securities and Exchange Commission (SEC) in the past.

However, with Paul Atkins as the new SEC chairman, all proposed regulations against PFOF trades have been withdrawn. This regulatory clarity should enable Robinhood to expand its commission-free trading platform further.

Key Statistics:

• Funded customers: 12.5 million (2020) → 25.2 million (2024)
• Assets under custody (AUC): $63 billion (2020) → $193 billion (2024)
• Revenue growth: 245% (2020) → 58% (2024)

2. Fewer Regulatory Challenges

The SEC's scrutiny of Robinhood's PFOF model had some investors speculating that the regulator could ban such trades altogether, crippling the company's core business. However, with the withdrawal of proposed regulations, this risk has diminished.

Moreover, Robinhood is diversifying its revenue streams by growing its subscription base and expanding into new areas like tokenization. Its premium Gold tier, launched nearly nine years ago, now boasts 3.2 million subscribers, up 90% year over year in Q1 2025.

Key Statistics:

• Number of Gold subscribers: 3.2 million (Q1 2025)
• Subscription revenue growth: 65% (Q1 2025)

3. Expanding Ecosystem and Improving Margins

Robinhood's ecosystem has expanded significantly over the past few years, with new features like crypto trading, options trading, card-based banking services, and AI-powered portfolio management tools. The company has also rolled out tokenized versions of U.S. Treasuries, stocks, and ETFs.

This expansion has helped improve Robinhood's margins, with its gross margin rising from 88% to 94.4% between 2020 and 2024. Its adjusted EBITDA margin jumped from 2.3% to 48.4% over the same period.

Key Statistics:

• Gross margin: 88% (2020) → 94.4% (2024)
• Adjusted EBITDA margin: 2.3% (2020) → 48.4% (2024)

4. Reasonable Valuation Relative to Growth Potential

While Robinhood's stock might seem pricey at 50 times this year's adjusted EBITDA, its growth potential suggests that the current valuation is reasonable. Analysts expect the company's revenue to grow at a CAGR of 18% from 2024 to 2027, with its adjusted EBITDA rising at a CAGR of 23%.

Conclusion

In conclusion, Robinhood stock looks reasonably valued ahead of its next earnings report on July 30. The company's rapid expansion and economies of scale, fewer regulatory challenges, growing subscription base, expanding ecosystem, improving margins, and reasonable valuation relative to growth potential all support this view.

While there are no guarantees in the stock market, these factors suggest that Robinhood is a promising investment opportunity for those willing to take on some risk.