Robinhood Markets’ HOOD shares are trading at a massive premium to the industry. At present, the company has a forward price/earnings (P/E) of 40.00X compared with the industry average of 13.95X.
Price-to-Earnings F12M
Image Source: Zacks Investment Research
Further, HOOD stock looks expensive compared with its peers -- Charles Schwab SCHW and Interactive Brokers IBKR. SCHW and IBKR have a forward P/E of 19.19X and 25.38X, respectively.
Based on this, Robinhood stock isn’t a good investment option for 2025. But before making any decision, let’s dig deeper.
HOOD’s Revenue Diversifying Efforts: Venturing Beyond Trading
Robinhood became extremely popular among younger generations in early 2021 riding on the meme stock wave. Nonetheless, since its IPO in July 2021, a lot has happened on the company front.
Robinhood has evolved from a brokerage firm mainly trading in digital assets to a more mature and diversified entity, striving to widen its market and reach. Looking at the numbers, in 2021, HOOD majorly depended on transaction-based revenues (almost 75% of total revenues) to generate income. In the first three months of 2024, this came down to nearly 50%.
Total Revenue Segregation
Image Source: Robinhood Markets, Inc.
Recent initiatives by the company reflect its ambition to become a full-spectrum financial services provider. Last month, Robinhood announced the $300 million acquisition of TradePMR, a custodial and portfolio management platform specializing in services for Registered Investment Advisors. By foraying into the advisory space, the company will directly compete with established players like SCHW and Fidelity Investments.
Moreover, in July, Robinhood acquired Pluto Capital Inc. With the integration of Pluto’s advanced capabilities, the company is set to revolutionize the investment experience for its users. Also, as part of a diversification effort, HOOD launched a credit card (expanding in the consumer finance space) and a desktop trading platform (catering to more sophisticated traders). Further, the company started offering futures, index options and election betting contracts, widening its market appeal.
Initiatives to change the revenue mix give HOOD solid leverage. The company intends to become a one-stop shop for building generational wealth.
Sales Estimates
Image Source: Zacks Investment Research
Further, during its first-ever Investor Day conference on Dec. 4, Robinhood announced plans to expand in Asia to capitalize on significant global growth prospects and launch Futures in early 2025, which it believes offers a nine-figure revenue opportunity.