Saying that Robinhood’s (NASDAQ:HOOD) stock performance has been unimpressive would be an understatement. After touching highs of $85 after its initial public offering (IPO), HOOD stock has been on a sustained correction. Currently, it trades for less than $16.
I believe the selling might be overdone in the near-term. A rally from current levels seems entirely likely.
As for the reasons behind its correction, the company’s business development has failed to impress investors. I would entirely agree with investor sentiments that Robinhood’s key metrics, like monthly active users (MAUs) and average revenue per user (ARPU), are weak.
Having said that, it’s natural for a brokerage industry to witness some volatility. Robinhood gained prominence at a time when penny stock and meme stock trading was at its peak. On a relative basis, the “Reddit Army,” among others, seems to have lost some ground. This has impacted Robinhood and the stock has been punished.
However, it’s worth noting the broad market sentiments remain positive. Further, cryptocurrency adoption continues to increase. There are potential catalysts that can take HOOD stock higher from oversold levels.
Crypto as a HOOD Stock Catalyst
For the third quarter of 2021, Robinhood reported net revenue of $365 million. On a year-over-year basis, revenue was higher by 35%.
During the quarter, cryptocurrency revenue increased by 860% to $51 million. Clearly, its crypto growth has been stellar and can be a gamechanger going forward.
It’s worth noting that Bitcoin (CCC:BTC-USD) has declined below $50,000. However, it has been volatile and a renewed rally seems likely in 2022 with wider adoption. I therefore expect cryptocurrency revenue to remain robust for Robinhood.
On the business development front, the company recently launched the beta version of crypto wallets. The wallet waitlist has seen more than one million sign-ups.
While Coinbase (NASDAQ:COIN) offers exclusive cryptocurrency trading, Robinhood is more diversified. With its crypto wallet and more trading pairs, Robinhood stands a chance to sustain healthy growth in the crypto markets.
Additionally, Robinhood has zero charge on buying and selling of cryptocurrencies, as compared to fees as high as 4% for some major exchanges.
The company is also trying to differentiate itself from a customer service perspective. Robinhood claims to be the first major crypto platform to offer 24/7 support.
More Than a Discounted Trading Platform
I believe another reason for investor disappointment in HOOD stock is that its business development has been slower than anticipated. In July 2021, Robinhood’s CEO suggested the company is eying expansion beyond trading.
The goal was for the platform to be the “only app that people use on their phones for money. That covers everything from depositing paychecks to paying bills to splitting payments with friends.” The launch of crypto wallets could be the first step toward this achievement.
I would not be surprised if Robinhood moves towards a business model that’s similar to those of PayPal (NASDAQ:PYPL) or Block (NYSE:SQ). It remains to be seen how soon these plans take shape.
It’s also worth noting that for the first nine months of 2021, Robinhood reported cash and equivalents of $6.2 billion. In Q3 of the same year, the company’s technology and development expenses surged. With ample financial flexibility, aggressive expansion in terms of products and features seems likely in 2022.
HOOD Stock Is Ready to Rise
For Q3 2021, Robinhood reported its first negative adjusted EBITDA in the last five quarters. However, operating loss was driven by higher product development, sales and marketing expenses.
Rollout of new products and additional features is likely to deliver results in terms of renewed growth in MAUs. Robinhood also had international expansion plans set for early 2021 that were put off. I would not be surprised if the company looks to make inroads beyond the United States.
Overall, HOOD stock has corrected sharply since listing. It’s still too early to conclude that the business will be in a downturn. I personally expect some consolidation followed by a relief rally.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
