Beyond Just Trading Stocks: Robinhood
Stock trading platform Robinhood Markets Inc. (HOOD) is a tough company for long-term investors to buy. The firm scores an “F” grade in my MarketMasterAI system for its high short interest and lumpy profitability. Louis’s Portfolio Grader awards Robinhood’s fundamentals a “C” for similar reasons.
However, the numbers don’t lie: Robinhood could see a near-term boost in share prices thanks to blowout first-quarter earnings.
On May 9, the Silicon Valley-based firm announced quarterly revenues of $618 million and EPS of $0.18, beating estimates by 13% and 226%, respectively. Rising cryptocurrency prices and renewed retail trading interest have put the company back on a path of growth. InvestorPlace.com’s Larry Ramer notes this week that investment bank Mizuho has now raised its target price to $23, a 29% implied upside.
Fellow InvestorPlace.com writer Marc Guberti now urges investors to look beyond Robinhood’s reputation as a one-trick pony.
The company’s foray into innovative financial products and services can create more opportunities. Investors are monitoring the company’s unlimited 3% cashback credit card that is available for Robinhood Gold members. Also, fintech firm has an impressive 3% match for IRA contributions.
Very few financial institutions and fintech companies have these types of offers. Most companies don’t match any of your IRA contributions. Robinhood can gain more ground as it releases innovative products and its trading platform continues to perform well. While the fintech company has fallen by 49% since its IPO, the stock is up by 45% YTD. Therefore, investors are starting to realize Robinhood’s potential, and a recent switch to profitability has helped matters.
Put another way, Robinhood’s Q1 results might be a sign of even greater improvements to come. The company now earns over $250 million each quarter from interest-based revenues (the interest earned on investor cash deposits). And the rising popularity of options could put Robinhood’s transaction revenues on more stable footing.
What’s in Your Wallet: SoFi
Online banking firm SoFi Technologies Inc. (SOFI) joins the list of strong earners this quarter. Revenues came in 4.4% better than expected, its largest positive surprise since 2022. Earnings were also impressive, with total profits beating forecasts by a solid 20%.
Perhaps the most notable feat, however, was that these figures were achieved without loan origination growth and only a 5.4% increase in loan balances. In other words, SoFi is purposely tapping on the brakes to balance its risks... and is still beating Wall Street’s expectations.
Will Ashworth sees SoFi’s conservative approach as a reason to buy shares.
“SoFi continues to add customers and deposits as its banking business grows,” he writes this week at InvestorPlace.com. “Restrained growth in a higher interest rate environment is a good thing.”
He views the firm as the ultimate long-term winner.
He’s not alone. InvestorPlace’s David Moadel sees shares topping $10 in the medium term, thanks to rising forecasts and strong underlying growth.
Essentially, SoFi’s management is keenly aware that banks that grow too quickly tend to face problems with bad loans. FICO credit scores only tell part of a borrower’s story, and regional lenders like First Republic and Signature Bank folded in 2023 precisely because they grew too quickly in markets they didn’t understand.
SoFi is taking a different tack – allowing its services business (i.e., non-lending) to grow fast, while keeping loan growth to manageable levels. First-quarter results showed this strategy in full light, and it’s only a matter of time before markets realize there’s more to SoFi’s story.
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Making The First Move: Bumble
Finally, Josh Enomoto writes this week at InvestorPlace.com about Bumble Inc. (BMBL). The dating app, he writes, is a potential breakout stock.
In my opinion, Bumble needs a simple tweak. It needs to focus more on the business rather than attempting to engineer gender equity in relationships. That means in traditionally oriented couplings, the company must allow male users to reach out to female users. Currently, women must make the first move, which hurts participation and engagement...
A ship can always be righted if the damage is caught in time.
Since that writeup, lo and behold, management says it is revamping Bumble's core business. Men can now make the first move if allowed, and the dating firm is also finding new ways to monetize through Premium+ subscriptions. As CEO Lidiane Jones noted in her Q1 earnings call:
We have expanded upon our signature make the first move by introducing choice in how connections made. Women can choose to make the first move as always. And now, they can choose to have a question set that their matches can respond to, creating a new way to engage with connection while retaining control...
We're [also] expanding monetization, once our updated Premium+ subscription is here. We continue to have conviction that our subscription tiers are designed to bring value to our customers by offering them the fastest path to finding their matches.
The company also announced strong first-quarter earnings. Revenues of $268 million beat expectations by 1%, while EPS of $0.19 came in 181% ahead. Not only is management revamping its core user experience; these efforts are already having an effect.
These improvements will go a long way to win back skeptics. Analysts now expect Bumble to earn $0.70 per share this year in profits, a 42% upward revision since January. And growth is expected to accelerate through 2025 as these efforts play out. If history is any guide, Bumble’s initial 7% post-earnings pop should be followed by even greater gains to come as markets begin to realize that Bumble’s growth story is far from over.
How to Profit Every Earnings Season
Earnings season can be an emotional roller coaster. Successful companies can still fall double digits if they fail to meet Wall Street’s lofty expectations. Struggling ones can surge 100%... 200%... 1,000% overnight, blowing up short positions along the way, if they beat their expectations.
This is the topsy-turvy nature of earnings season. Volatility is a fact of life, so the best we can do is trade with it.
In fact, volatility can be a trader’s best friend, and my colleague Jonathan Rose has been trading volatile markets for over 25 years.
The man’s a master trader. He was a bona fide market maker for many years, a floor trader at the Chicago Mercantile Exchange, and the Director of Trading at a multimillion-dollar proprietary trading firm. He’s also trained over 100 traders that went on to become professionals.
What he has to say in his recent Masters in Trading Summit is worth hearing. During that event, Jonathan reveals the strategy he and other CBOE Exchange traders use. Go here to check it out.
And I’ll see you back here next week with more from InvestorPlace.com’s writers and analysts.
Regards,
Thomas Yeung, CFA
Markets Analyst, InvestorPlace.com
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