Robinhood’s stock has surged by an impressive 28% in 2025 so far. As someone who has recommended Robinhood as a buy throughout the year, I’m naturally happy with this performance. But here’s the question that all investors should be asking themselves right now: Is it time to take profits on Robinhood stock?
In this article, I will dive into two significant risks that Robinhood faces in its business operations, reevaluate its valuation, and ultimately give an updated recommendation on whether it’s time to buy, hold, or sell Robinhood stock in the face of current market volatility. I will also walk you through my proprietary discounted cash flow (DCF) model for Robinhood and explore the company’s forward price-to-earnings (P/E) ratio to reach a conclusion. So let’s get started.
Earning Overview
Robinhood’s Q1 2025 financial results reveal a company that's performing well above expectations. With revenue of $927 million, the company experienced a remarkable 50% year-over-year growth, surpassing the expected $920 million. Notably, net income surged 114% to $336 million, and earnings per share (EPS) more than doubled, reaching $0.37 compared to $0.18 in Q1 2024.
This impressive financial performance highlights Robinhood’s ability to generate substantial returns even amid macroeconomic challenges. The company’s focus on diversified revenue streams, such as transaction-based revenues and net interest income, continues to pay off, as shown by these results.
Fundamental Analysis
Robinhood’s transaction-based revenues came in at $583 million, up 77% from the previous year. This growth was primarily driven by a significant increase in cryptocurrency trading, which nearly doubled to $252 million. Options trading also saw a healthy rise, contributing $240 million, a 56% increase year-over-year. Equities trading generated $56 million, marking a 44% increase.
In addition to transaction-based revenues, Robinhood also saw growth in net interest revenues, which rose 14% to $290 million. The company’s diversified revenue model is proving resilient, with other revenues, including those from Robinhood Gold subscriptions, also showing strong performance—up 54% to $54 million.
User Growth and Engagement
User growth remains a cornerstone of Robinhood’s strategy, and the Q1 results reflect this. The company added 25.8 million funded customers, marking an 8% increase year-over-year. Investment accounts also grew by 11%, reaching 27.0 million, while Robinhood Gold subscribers saw a dramatic 90% increase to 3.2 million.
The Average Revenue Per User (ARPU) climbed 39% to $145, indicating that Robinhood is not only attracting new users but also increasing engagement with its platform. Additionally, net deposits grew to $18.0 billion, a 37% annualized growth rate, signaling continued investor confidence in the platform.
Strategic Developments and Acquisitions
In addition to its strong financial and user growth, Robinhood continues to expand its product offerings. The company launched several new initiatives, including Robinhood Strategies, Banking, and Cortex. These initiatives already have over 40,000 customers and $100 million in assets under management, showcasing Robinhood’s ability to innovate and capture a growing market of investors.
Robinhood also completed the acquisition of TradePMR, adding approximately $41 billion in assets under management. This acquisition is expected to enhance Robinhood’s capabilities in serving wealth management clients, positioning the company as a more diversified financial services provider.
The company also increased its share repurchase program authorization by $500 million, bringing the total to $1.5 billion. This move reflects Robinhood’s confidence in its future growth prospects and commitment to delivering value to shareholders.
Regulatory and Legal Issues
One of the biggest risks Robinhood faces comes from regulatory and legal challenges. The company's business model is centered around payment for order flow. Here’s a quick refresher on how it works: When you place a trade on Robinhood, you’re not paying any commission fees to execute the transaction. So how does Robinhood make money?
The answer lies in the way Robinhood routes its orders to market makers or third-party processors for execution. These processors pay Robinhood a small fee for routing the orders to them. This is known as payment for order flow. While this enables Robinhood to offer commission-free trades, it also creates a potential risk. The revenue Robinhood generates through this process is not guaranteed forever. Regulators could step in and change the rules, potentially eliminating or restricting the ability to make money from order flow.
If regulators decide that payment for order flow isn't in the best interest of consumers or the market as a whole, Robinhood could lose a key revenue stream. This is one of the most significant risks for Robinhood investors. While this hasn’t been an issue yet, it’s a risk that could materialize down the road.
Furthermore, Robinhood has expanded into cryptocurrency trading, which has also drawn scrutiny from regulators. In 2024, the SEC issued a notice to Robinhood alleging violations related to unregistered crypto tokens. While the current administration has largely taken a hands-off approach to cryptocurrency regulation, the political climate can shift quickly. If a new administration takes a more aggressive stance on crypto, this could affect Robinhood’s ability to continue offering these services.
So, while the current regulatory environment may be favorable for Robinhood’s business model, future changes could pose significant challenges to the company’s growth.
Competitive and Market Risks
The second major risk for Robinhood is competition, especially from traditional financial institutions. Firms like Fidelity and Charles Schwab offer similar services to Robinhood but have the advantage of being well-established in the market. These companies have decades of experience, a large customer base, and a reputation for serving more serious, long-term investors.
Robinhood, on the other hand, has built its platform around a more gamified approach to investing. The platform is designed to be user-friendly, even for complete beginners, with features like free stocks for signing up, sound effects that simulate a "game-like" experience, and a focus on making investing feel more accessible. While this strategy has worked well for attracting new, less experienced investors, it has also been met with criticism. Some experts argue that gamifying investing could make people treat it more as a speculative gamble rather than a serious long-term strategy.
This approach might be effective in the short term for drawing in new users, but in the long run, it could harm Robinhood’s reputation. As users gain more experience, they may look for more sophisticated platforms, such as those offered by Fidelity or Schwab, that cater to more serious investors.
Additionally, user acquisition in the financial services industry is costly. Traditional competitors are spending significant amounts on marketing to attract new customers. If these companies increase their marketing spend, it could put pressure on Robinhood to match their efforts. While Robinhood is working on building its user base, it faces constant pressure to maintain or increase its share of the market, which could strain its margins and profitability.
Robinhood's Valuation: Is It Overvalued?
Now that we've explored some of the risks, let’s turn our attention to the valuation of Robinhood’s stock. The most common way I assess the intrinsic value of a company is by using a discounted cash flow (DCF) model. For the purposes of this article, I’ll be focusing on the end result of my DCF calculation—what I believe the stock is worth today.
Based on my DCF model, the intrinsic value of Robinhood stock is $33.28 per share. This is significantly lower than its current market price of $47.58 per share. According to this calculation, Robinhood’s stock appears to be overvalued by around 30%.
Furthermore, when I analyze Robinhood’s forward price-to-earnings (P/E) ratio, I see that the company is trading at a P/E of 38. This is also on the higher side, suggesting that the stock could be overvalued.
While Robinhood’s stock has performed well this year, the company faces several challenges, both internally (such as user acquisition costs and market competition) and externally (including regulatory pressures). Additionally, the company’s earnings expectations for the next few years have been lowered. Robinhood, like many other companies, is vulnerable to macroeconomic fluctuations, which can negatively impact trading volumes, especially in its crypto business. Reduced trading activity would, in turn, hurt the company's earnings growth prospects for 2025 and 2026.
Conclusion: Downgrading Robinhood to a Hold
Given the regulatory uncertainties, competitive pressures, and the fact that the stock price has already surged this year, I’m downgrading Robinhood stock to a hold or market perform rating. While Robinhood remains an interesting company, its stock appears to be overvalued at this point, and it faces significant risks in the future.
If you’re already holding Robinhood stock, you may want to consider taking profits, especially if you bought in at a lower price. For those looking to enter a position, I would advise waiting for a better entry point, perhaps after a correction in the stock price.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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