Robinhood Stock Price Down 35% in January – Time to Buy HOOD Stock?

Robinhood stock is down almost 35% in January and continued slump in today’s price action also. It 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.

Robinhood stock has been falling

HOOD stock now trades 86% below its 52-week highs and the drawdown looks to increase further. The question here could be, why is Robinhood stock falling, and what lies ahead for the popular retail trading app?

The fall in HOOD stock is driven by multiple factors. Firstly, there has been a sell-off in growth companies. The fintech space has been hit quite hard and names like PayPal, Block, Affirm Sofi, and Paysafe trade at a fraction of their 52-week highs. While the fintech sector is a good long-term growth story, markets have been apprehensive of these stocks amid the expected rise in interest rates.

But then, mere macro weakness is not to blame for the slump in Robinhood’s stock price. The company’s growth has stalled and markets are repricing the stock. After weak earnings in the third quarter, the company’s fourth-quarter earnings also disappointed markets.

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HOOD stock recent developments

Robinhood released its fourth-quarter earnings yesterday after the close of US markets. The company reported revenues of $363 million in the quarter which were similar to what analysts were expecting. It posted a net loss of $423 million in the quarter which was slightly ahead of estimates.

The company reported monthly active users of 17.3 million in the quarter, which was below the 18.9 million that it reported in the third quarter. It had a total of 22.7 million funded accounts at the end of the quarter, which was slightly ahead of the 22.4 million that it reported at the end of September.

Robinhood’s guidance disappointed

While Robinhood’s fourth-quarter earnings were more or less in line with estimates, its first-quarter guidance spooked investors. The company expects its revenues to be below $340 million in the quarter, which would mean a YoY fall of 35%. Here it is worth noting that HOOD is facing tougher YoY comps in the first half of 2022. In the first half of 2021, it saw a spike in volumes amid the meme stock and dogecoin mania. However, the meme stock trade is now mostly dead and even dogecoin is not as popular among traders as it was in the first half of 2022.

Crypto trading volumes have fallen

The fall in dogecoin trading has particularly hit Robinhood hard. In the second quarter of 2021, the company got more revenues from crypto trading than equity. Within cryptos, dogecoin was the most popular among Robinhood users.

In the second quarter of 2021, Robinhood reported crypto revenues of $223 million which fell to $51 million in the third quarter, and further to $48 million in the fourth quarter. HOOD reported overall transaction-based revenues of $264 million in the fourth quarter. Option trading accounted for $163 million while stock trading added $52 million to the company’s fourth-quarter revenues.

Robinhood is looking to reposition itself

Robinhood has been trying to reposition itself as a complete investment destination and not merely a “fun trading app.” Talking about its 2022 plan, it said, “Robinhood will build products intended to help with long-term investing, aiming to make it easier for customers to build for their futures no matter where they are in their financial journeys.” HOOD is also said to be contemplating getting into the IRA. However, it remains to be seen how many users trust the app with more serious financial products.

HOOD has also been looking at cryptos to drive its sales. However, it has been quite choosy about adding new cryptos and crypto-related services to the platform. In its earnings release, it said “Robinhood has set aggressive goals to start opening its crypto platform up to customers internationally in 2022. The company believes in the immense potential of the crypto economy and sees a big opportunity in serving customers across the globe.”

HOOD stock forecast

Wall Street analysts have a mixed forecast for HOOD stock. Of the 14 analysts covering the stock, five have a buy rating while seven have a hold rating. Two analysts have a sell rating. Its median target price of $20 is a 72% premium over current prices. The street low target price of $12 is a premium of 3.3% while the street high target price of $51 is a 340% premium.

Over the last month, several brokerages including Mizuho, KeyCorp, Deutsche Bank, Piper Sandler, Bank of America, and JPMorgan have lowered HOOD’s target price. The stock’s consensus target price is now less than half of what it was in November 2021.

Bank of America initiated coverage of Robinhood stock

In December, Bank of America gave Robinhood an underperform rating and assigned a target price of $22. It said, “As individuals see lower or negative returns in their Robinhood accounts and return to their offices, we estimate HOOD’s organic growth and trading activity could face a multi-year headwind as client engagement fades.”

It added, “We believe HOOD’s growth will come in waves, triggered by new product launches and market volatility. New capabilities including future IRA launches and extending trading hours could encourage larger client inflows in future quarters.”

HOOD stock long term forecast

Robinhood is working on several new products to increase its wallet share from existing investors. It is working on offering IRA and has a waitlist of 1 million for its crypto wallet. The company might eventually add more cryptos as well as services like staking and lending on the platform. However, the company said that it would be careful and wait for more regulatory clarity.

Should you buy Robinhood stock?

Robinhood has proven to be among the biggest wealth destroyers among the companies that went public in 2021. The company’s fourth-quarter earnings have left the bulls heartbroken for the second consecutive quarter. 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 5.3x. Currently, Robinhood is at its lowest point since it went public. However, if you can be greedy when the markets are fearful, HOOD stock could be for you. While the stock may remain under pressure for some more time, at these price levels it looks too cheap to ignore.

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