Cathie Wood is a famous Wall Street investor and the fund manager behind Ark Invest. Over the years, Wood has identified and invested in disruptive technology companies that have the potential to generate market-beating gains for shareholders.
Here's one stock that's a key holding in Wood's flagship Ark Innovation ETF (ARKK), and looks set to benefit from potential short-term volatility in the equity markets. Let’s see why.
Deutsche Bank is Bullish on Robinhood
One growth stock that's been a part of Cathie Wood's flagship ETF for quite a while is Robinhood Markets (HOOD), a discount broker that rapidly gained massive traction among retail investors for its fee-free structure.
Valued at a market cap of $17.4 billion, Robinhood stock has almost doubled investor returns in the last 12 months, up more than 94% in this time frame.
However, HOOD trades 76% below its all-time highs, and has trailed the broader markets since its IPO in July 2021.
How HOOD Benefits from Market Volatility
Last week, Robinhood gained close to 5% in a single trading session on Aug. 15, after investment firm Deutsche Bank (DB) upgraded the stock to “Buy” from “Hold.”
In an investor note, analyst Brian Bedell stated, “With the recent market sell-off & potentially volatile conditions into the upcoming US elections, we find the e-brokers as screening most attractively valued for the next 12 months, but also possessing near-term positive catalysts.”
In particular, Bedell expects Robinhood to benefit from near-term volatility in the equity and fixed-income markets. Generally, the performance of brokerage platforms is closely tied to trading volumes, as higher volumes result in higher fees and revenues.
Robinhood recently reported that its July trading volumes rose across financial products, including equities, options, and cryptocurrencies. Equity notional trading volumes rose 51% year over year to $104.4 billion, while option contract trades rose 51% year over year to $160.5 million. Crypto notional trading volumes jumped 56% to $5.3 billion.
Assets under custody stood at $144.5 billion, up from $94.5 billion last year, while net deposits rose 36% year over year to $4.2 billion.
So far, according to management, August volume "looks a lot like July, including over $1 billion of net deposits in the first week" of this month.
A Strong Performance in Q2 of 2024
Robinhood reported net revenue of $682 million in Q2 of 2024, up 40% year over year. Its transaction-based sales rose 69% to $327 million, as options revenue rose 43% to $182 million, crypto revenue rose 161% to $81 million, and equities revenue rose 60% to $40 million.
The company’s net interest revenue rose 22% to $285 million, led by high-yield assets and higher securities lending activity. Other revenues rose 19% to $70 million due to higher Robinhood Gold subscription sales.
Robinhood’s asset-light model allowed the company to benefit from operating leverage. The company ended Q2 with a net income of $188 million, or $0.21 per share, compared to $25 million, or $0.03 per share, in the year-ago period.
Robinhood should continue to increase the top line if it can expand the customer base and drive average revenue per user higher. Its ARPU rose 35% to $113, while the number of Gold subscribers rose 61% to 2 million.
With $4.5 billion in cash, Robinhood has enough flexibility to target accretive acquisitions. In June, Robinhood disclosed plans to acquire Bitstamp, a crypto exchange with a sizeable presence in the U.S. and Europe. In July, Robinhood also acquired Pluto Capital, an AI-powered investment research platform.
What's the Target Price for HOOD Stock?
Out of the 17 analysts tracking Robinhood stock, eight recommend “strong buy,” seven recommend “hold,” and two recommend “strong sell.” That's good for an average rating of “moderate buy,” compared to a “hold” consensus from Wall Street just one month ago.
The average target price for HOOD stock is $22.16, indicating an upside potential of 9.8% from current levels.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
