Years ago, Robinhood Markets (NASDAQ:HOOD) spearheaded a revolution in self-directed stock trading and investing. However, Robinhood remains controversial to this day and has run into legal/regulatory issues. Plus, Robinhood’s declining user count should make prudent investors think twice if they’re considering HOOD stock.
This doesn’t mean it will never be a good idea to own a share stake in Robinhood. I’m only recommending that people should be patient and wait until a particular event has taken place. So, get ready to mark your calendar as Robinhood is expected to release a slew of crucially important data points.
HOOD Stock Pops but Then Drops
It’s been a roller-coaster year for HOOD stock as it soared to $13 in June but then dropped to $9 and change recently. So, is it time to employ a buy-the-dip strategy?
Don’t be too eager to jump into the trade. For one thing, Robinhood expects to report $100 million worth of costs in the third quarter of 2023, related to resolving legal and regulatory issues. As you may be aware, Robinhood has a less-than-friendly history with U.S. regulators.
For instance, the Securities and Exchange Commission (SEC) fined Robinhood $65 million for allegedly misleading its customers. Furthermore, under similar allegations, the Financial Industry Regulatory Authority (FINRA) required Robinhood to pay a total of roughly $70 million in fines.
So, even confident dip buyers should remain cautious about HOOD stock. At the very least, wait until Robinhood releases its next round of quarterly results in order to assess the full damage of Robinhood’s legal/regulatory problems.
A Do-or-Die Date for Robinhood
Here’s the date you should mark down on your calendar. Robinhood is set to publish its third-quarter 2023 financial results after market closes on Tuesday, Nov. 7.
Along with Robinhood’s hefty expenses related to legal and regulatory issues, another concern is the company’s declining user base. In 2023’s second quarter, Robinhood’s monthly active users (MAU) declined by 1 million quarter over quarter to 10.8 million.
Moreover, in August, Robinhood’s MAU decreased 4% month over month and fell 20% year over year. In the company’s upcoming quarterly report and conference call, Robinhood’s management really needs to establish an action plan to turn this problem around.
It’s not all bad news for Robinhood. In Q2 2023, the company swung from a net earnings loss to net income. As CEO Vlad Tenev put it, Robinhood “reached a significant milestone by achieving GAAP profitability for the first time as a public company.”
That’s commendable, but cautious investors should want to see some follow-through in Q3. Another profitable quarter and some improvement in stemming active-user losses would certainly be positive signs for Robinhood.
Don’t Buy HOOD Stock Until Nov. 7 Has Passed
Truly, Nov. 7 could be a make-or-break day for Robinhood. The company is already dealing with significant costs related to regulatory/legal problems. So now, it’s a question of whether Robinhood can remain income-positive and put its MAU count back on a positive trajectory.
In other words, Robinhood remains a show-me story for skeptical investors until proven otherwise. There may come a time when it’s wise to buy HOOD stock, but until Nov. 7 has come and gone, the best policy is to just wait and watch.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
