Robinhood Stock Price Forecast May 2022 – Time to Buy HOOD Stock?

Robinhood (HOOD) stock has had a dismal ride in 2022 and is down almost 45% for the year. The stock hit a new all-time low last week before recovering slightly.

HOOD was among the most hyped IPOs of 2021 but eventually priced the IPO at $38, which was the low end of the price range. Robinhood did not have a good listing and soon the stock fell below the IPO price. However, there was a buying spree thereafter and the stock went as high as $85. The stock could not sustain those price levels and has been falling over the last few months. HOOD stock now trades 89% below its 52-week highs. What’s the forecast for the stock and should you buy the dip?

Robinhood stock recent developments

Robinhood reported its first-quarter 2022 earnings last week. The report disappointed on almost all the financial and operating metrics. It reported revenues of $299 million in the quarter which was 43% lower than the corresponding quarter last year. The metric also fell well short of the $355.8 million that analysts were expecting.

HOOD’s transaction-based revenues fell 48% YoY to $218 million in the quarter. Its equities revenues fell 73% to $36 million while options revenues fell 36% to $127 million. The company’s earnings in the quarter suffered from a double whammy. On the one hand, it was facing tougher YoY comps as its equities and options revenues had spiked in the first half of 2021 amid the meme stock mania. It was always difficult for Robinhood to repeat the stellar performance of H1 2021.

However, the recent market sell-off has only made things worse. Growth stocks, that are quite popular among retail traders have crashed over the last six months. The falling popularity of growth and meme stocks is also reflected in Robinhood’s earnings.

68% of all retail investor accounts lose money when trading CFDs with this provider.

Cryptos were also not a savior for HOOD

In the second quarter of 2021, Robinhood’s crypto revenues hit a record high amid frenzied trading in Dogecoin. The app only had a few cryptos on the platform including Dogecoin. There was frenzied trading in Dogecoin in the second quarter of 2021 amid pumping from Tesla’s CEO Elon Musk.

However, since then, the company’s crypto revenues have been gradually falling. In the first quarter of 2022, HOOD reported crypto revenues of $54 million which were 39% lower than the corresponding quarter of 2021. Trading activity in cryptos has come down sharply from the last year which is also reflected in Coinbase’s stock price. The crypto exchange is expected to report earnings later this month and analysts have been slashing down their earnings estimates over the last couple of months.

Robinhood posted wider than expected loss

Robinhood reported a per-share loss of $0.45 which was wider than the $0.36 that analysts were expecting. The company’s MAUs (monthly active users) also fell to 15.9 million as compared to 17.7 million in the first quarter of 2021. Notably, HOOD’s MAUs have now fallen sequentially for three consecutive quarters.

HOOD announced layoffs

Amid sagging growing and perennial losses, Robinhood said that it would lay off 9% of its workforce. The company is overstaffed and said that there is inefficiency and duplicity in roles as a result. It is looking to lower costs and is aiming for an adjusted EBITDA breakeven by the end of the year.

Vlad Tenev on earnings

Commenting on the earnings, Robinhood’s CEO Vlad Tenev said, it “was the story of two competing forces, our accelerating product development juxtaposed against a difficult macroeconomic climate.” Notably, the company is investing in several new products. It has added new cryptos including Shiba Inu to the platform. It has also rolled out the crypto wallet service. HOOD is also looking to add new products including long-term investment solutions like retirement savings to the platform.

It has also announced the acquisition of Ziglu which would help in expanding internationally in the crypto trading market. It has also launched its debit card and expects to become an integral part of its users’ financial life. The company said, “We also expect to see more customers direct depositing their paychecks directly into Robinhood and using Robinhood for anything they would use their bank for, except with lower fees and a much better user experience.”

Robinhood would focus on “advanced customers”

During the earnings call, Robinhood said that it would focus on advanced customers. These customers have a high ARPU (average revenue per user). However, the company declined to comment on its benchmark for this set of customers. It said that while the biggest customers on the platform have been quite active, there has been a fall in volumes from customers that have lower balances.

“With the uncertainty in the market, our customers became more cautious with their portfolios, trading less frequently and in smaller amounts across all asset classes, although crypto activity, in particular, came down pretty significantly,” it said during the earnings release.

Robinhood’s CFO Jason Warnick said that its ARPU was around $53 in the quarter and it needs to push the metric to $80 to achieve EBITDA breakeven.

Charlie Munger on Robinhood

Berkshire Hathaway vice chair Charlie Munger also took a swipe at Robinhood’s falling stock price during the recently held Berkshire annual meeting. “It’s so easy to overdo a good idea. … Look what happened to Robinhood from its peak to its trough. Wasn’t that pretty obvious that something like that was going to happen,” said Munger. He added that it was “unraveling now” and “God is getting just.”

HOOD stock forecast

Of the sixteen analysts covering Robinhood, only five have a buy rating while three have a sell rating. The remaining eight analysts have a hold rating. Its median target price of $11.75 is a premium of just under 20% from these levels. Wall Street analysts have gradually reduced their target prices over the last six months.

Should you buy Robinhood stock?

Robinhood is among the worst-performing IPOs of 2021. The company faces several challenges including the SEC’s scrutiny of the order flow mechanism, from which HOOD gets most of its revenues.

However, it now trades at an NTM (next-12 months) price-to-sales multiple of just about 4.5x. The company looks like a “show me story.” It has to deliver on topline growth while also reaching EBITDA breakeven. The company plans to be a financial super app which might not be easy considering its image as a fun trading app.

Given the continued sell-off in stock markets and the waning interest in cryptos, there don’t look many drivers to take the stock higher in the short term.

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