Stock-market boom helps crypto new business sail… Robinhood 'rally'

Hot Pick! Overseas Stocks

Robinhood becomes a 'must-have app' for U.S. investors

Assets under management jump threefold in a year

Expanding services such as cryptocurrencies

User numbers surged as stock-market boom coincided

Stock price up 272% on the Nasdaq this year

Mixed buy and sell opinions on Wall Street

BoA expects it to rise to $157

Morgan Stanley issues 'hold' rating

Shares of Robinhood, a stock trading app popular with U.S. retail investors, have recently surged again. The increase is attributed to growing expectations for expansion into digital assets such as cryptocurrencies, tokenized securities, and stablecoins.

◇ Up 270% this year

On the 2nd (local time), according to Nasdaq in the U.S., Robinhood's stock price has jumped 272.16% so far this year. From the 2nd to the 31st of last month, the gain reached 45.56%. This far outpaced the Nasdaq index's rise of 11.49% over the same period. Compared with the period after its IPO in July 2021, when the four years and five months through the end of December last year saw only an 11% gain, the change is striking.

The company also saw its stock fall 75% over the year following its listing until July 2022. During the COVID-19 period, a frenzy of 'meme stock' investing including GameStop drew many young investors and Robinhood was regarded as a next-generation financial platform, but later it failed to deliver results commensurate with market expectations due to perceptions of being a 'free stock trading app.'

◇ Crypto tailwind amid stock-market boom

Securities firms say Robinhood's recent share price rise reflects a 'twin pull' from its core securities trading business and various new ventures. First, global stock markets, including the U.S., have risen sharply, increasing the number of stock investors. Investors who have funds deposited with Robinhood grew from 23.2 million in Q2 2023 to 26.5 million in the most recent quarter. Assets under management through Robinhood expanded from $89 billion to $279 billion, more than tripling. Paid subscription service users for products such as portfolio analysis reached 3.48 million in Q2, a 75.7% increase year on year.

Expanding into brokerage for other asset classes besides stock trading is also a reason for the user increase. Earlier this year, Robinhood launched index options and futures trading services. In May, it acquired Canadian crypto platform WonderFi, and in June it acquired Europe's largest crypto platform Bitstamp. The number of supported cryptocurrencies for trading has been steadily increasing. According to Robinhood, $28.3 billion worth of cryptocurrencies were traded through Robinhood in Q2, a 24% increase year on year.

In June, it began trading tokenized securities (ST) in European markets. In the relatively less-regulated European market, it intermediates investment trading by tokenizing U.S. stocks and exchange-traded funds (ETFs). Investors can buy tokenized fractions of major U.S. listed stocks as well as shares of private companies like OpenAI and SpaceX. It also supports trading and custody of Circle's stablecoin (USDC).

Shinhan Investment Corp. analyst Choi Seung-hwan said, "With global equity markets booming, more investors and assets are trading through Robinhood, which raises average revenue per user (ARPU) in a virtuous cycle," and added, "Attempts to connect traditional finance and crypto assets are also drawing expectations."

◇ 'Money tree' also betting

Some argue that expectations for new businesses have been priced into the stock too quickly. As of the 31st of last month, Robinhood's price-earnings ratio (PER) stood at 74.81. Analyses suggest capital efficiency is relatively weak, with return on invested capital (ROIC) below the weighted average cost of capital (WACC).

Wall Street views are mixed. On the 1st of last month, Morgan Stanley set a Robinhood price target of $146 and issued a 'hold' rating. Citigroup also indicated $135 as appropriate and issued a 'hold.' By contrast, Bank of America issued a 'strong buy' last month, saying Robinhood's stock could rise to $157.

On the 23rd of last month, ARK Invest, led by well-known investor Cathie Wood—known as the 'Money Tree Sister'—purchased an additional 167,489 Robinhood shares through two of its ETFs, worth $21.3 million (about 30.5 billion won).

Reporter Seon Han-gyeol always@hankyung.com