Robinhood’s (NASDAQ:HOOD) fourth-quarter results and Q1 guidance bode very badly for HOOD stock.
Moreover, the continued weakness of cryptocurrencies and the tumbling of meme stocks also have left Robinhood’s financial results and its stock, poised to sink much further. Significant, additional competition could be on the way for the beleaguered company.
What’s more, I’m now pretty much convinced that the company is caught in the negative, vicious cycle that I warned about in my Dec. 9 column.
Foreboding Q4 Results and Q1 Guidance
Several aspects of the company’s Q4 results and Q1 guidance were quite bearish for HOOD stock.
As another InvestorPlace columnist, Chris Lau, recently noted that the company’s equities revenue tumbled 35% year-over-year, while its monthly active users dropped 8.5% versus Q3. And Robinhood’s sales from crypto trades, which many view as its growth engine, fell 5% versus Q3. Finally, as Lau pointed out, the company’s average revenue per user declined by 39% to $64 on an annualized basis.
Even more ominously for HOOD stock, the company predicted that its revenue for the current quarter would sink 35% versus the same period a year earlier and drop more than 6% versus Q4.
These numbers, along with the sharp declines of the meme stocks and most cryptocurrencies, show that Robinhood is indeed being hit by the retail trader exodus that I warned about in my previous column.
That provides me with a good segue to my next point.
Cryptos and Meme Stocks Will Likely Continue to Fall
With many pundits and members of the public still very bullish on cryptos, it’s easy to forget or overlook just how far the coins, which were viewed by many as pretty much invincible only six months ago, have fallen.
Bitcoin (BTC-USD) tumbled 44% from its all-time high, while Ethereum (ETH-USD) lost close to 50% from its record levels. Also not spared was the iconic and (at one time) much-loved Dogecoin (DOGE-USD), which slumped more than 80% from its highest levels.
Also notable is that cryptos have tumbled even as consumers’ worries about inflation have surged tremendously. That fact goes a long way towards proving my thesis that cryptos are not “a store of value” or a hedge against inflation, but a bubble that’s primarily a product of government stimulus.
And after the Fed’s bond purchases end completely next month and as we get further away chronologically from the stimulus that Washington provided last year, I expect the crypto/meme stock declines and the retreat of retail investors to accelerate.
As a result, in Q2, Robinhood’s results are likely to sink tremendously versus Q1, pulling HOOD stock down much further.
More Competition Is Reportedly on the Way
On Feb. 3, Seeking Alpha reported that that the social media platform Stocktwits intends to let users to trade cryptocurrencies. I would not be at all shocked if the website eventually also enables its users to buy and sell stocks.
According to a December 2021 report by India’s Economic Times, Stocktwits had “more than 6 million users from around the world, with over 1 million monthly active users. In 2021, Stocktwits witnessed 50% year-on-year growth.”
It appears to me that, since the coronavirus pandemic started, Stocktwits has begun to attract many of the millennial and Generation Z users that are also Robinhood’s bread and butter. Consequently, Stocktwits’ move into trading could meaningfully erode Robinhood’s market share.
The Bottom Line on HOOD Stock
The crypto and meme stock craze is over and is poised to erode further going forward, causing the trading activity of Robinhood’s fan base to sink much further. Meanwhile, Robinhood looks poised to get a significant, new competitor.
And like many stocks that became popular with retail investors in 2020 and subsequently sank, HOOD stock is still not cheap, despite its plunge. Specifically, its price-sales ratio is 8.5, according to Marketwatch.
Given all of these points, I continue to urge all investors to sell the shares.
On the date of publication, Larry Ramer did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.