Robinhood (HOOD) shares are down nearly 12% as some big investors and Wall Street analysts have given up on forecasts for a sharp earnings decline.
On April 28, the popular trading platform missed first-quarter earnings and revenue estimates, largely due to weak cryptocurrency trading activity. The market punished the stock, but Cathie Wood’s Ark Invest saw it as an opportunity and bought about $39.7 million worth of shares the next day, signaling confidence in the trading platform’s future. Robinhood remains a significant presence in Ark’s portfolio at about 3%, ranking among the top performers in all three funds.
The bucking move appears to coincide with Wall Street analysts, who agree the stumble is a blip for the company and that early April data suggests the company’s momentum is improving. They added that stock and options trading volumes are trending toward their strongest levels this year, providing a potential counterweight to the cryptocurrency’s ongoing weakness.
Cantor Fitzgerald reiterated its “overweight” rating and $110 price target, saying recent activity points to stability. “Preliminary equity/options trading volume in April is on track for the highest monthly levels of the year,” the company wrote, adding that the earnings decline had more to do with market conditions than core business issues.
Compass Point, another firm, echoed this view, maintaining a “buy” rating while slightly lowering its target price to $107. The company said the market reaction appeared to be “backward-looking” given expectations for a strong second quarter.
While both brokers are bullish on Robinhood’s prospects, some analysts warn that risks remain, especially in the cryptocurrency trading space, which could continue to impact results in the short term due to lower trading volumes and pricing pressure across the industry.
Investment bank Keefe, Bruyette & Woods (KBW), which already had the lowest price target on the stock, has lowered it further, according to FactSet data. Analysts at the firm rated the stock a “hold,” warned that transaction fees may continue to decline, and lowered their target to $65 from $75.
“Catch rate [are] Analysts at the firm said cryptocurrency and options acceptance continued to decline in the second quarter. This trend has led to lower long-term forecasts, with KBW lowering its earnings forecast through 2028.
That concern doesn’t appear to be deterring one of the most bullish analysts. Analysts at Bernstein maintained an “outperform” rating and $130 price target, noting that there are signs that cryptocurrency activity may be stabilizing as prices did not see any further declines in April while stocks and options remain strong.
Furthermore, in addition to trading, bullish investors are now turning their attention to new revenue streams.
Prediction markets are becoming a key area, with companies highlighting the growth of event-based contracts as well as upcoming catalysts such as product launches and global events. Robinhood’s planned prediction market platform Rothera is seen as a potential driver of future revenue and profit expansion, Cantor said.
For now, the outlook depends on whether the recent increase in deal activity can be sustained. If they do, Robinhood could return to growth sooner than expected. If not, pressure on trading revenue could continue into the second half of the year.
The stock rose about 3% on Thursday but is down about 37% this year. Coinbase (COIN), one of its cryptocurrency peers that tends to trade in partial sync, is up about 3% on the day and is down about 19% year to date.
Read more: Why Cantor Fitzgerald thinks Robinhood and Coinbase are the best ways to fuel prediction markets boom
