Robinhood (NASDAQ:HOOD) Surprises With Strong Q1

Financial services company Robinhood (NASDAQ:HOOD) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue up 40.1% year on year to $618 million. It made a GAAP profit of $0.18 per share, improving from its loss of $0.57 per share in the same quarter last year.

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Robinhood (HOOD) Q1 CY2024 Highlights:

• Revenue: $618 million vs analyst estimates of $555 million (11.4% beat)
• EPS: $0.18 vs analyst estimates of $0.06 ($0.12 beat)
• Gross Margin (GAAP): 87.2%, up from 82.3% in the same quarter last year
• Free Cash Flow was -$632 million, down from $954 million in the previous quarter
• Funded Customers: 23.9 million, up 800,000 year on year
• Market Capitalization: $15.81 billion

With a mission to democratize finance, Robinhood (NASDAQ:HOOD) is an online consumer finance platform known for its commission-free stock and crypto trading.

Online MarketplaceMarketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.

Sales GrowthRobinhood's revenue growth over the last three years has been strong, averaging 24.3% annually. This quarter, Robinhood beat analysts' estimates and reported impressive 40.1% year-on-year revenue growth.

Ahead of the earnings results, analysts were projecting sales to grow 16.3% over the next 12 months.

Usage Growth As an online marketplace, Robinhood generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.

Over the last two years, Robinhood's users, a key performance metric for the company, grew 1.9% annually to 23.9 million. This is one of the lowest rates of growth in the consumer internet sector.

In Q1, Robinhood added 800,000 users, translating into 3.5% year-on-year growth.

Revenue Per UserAverage revenue per user (ARPU) is a critical metric to track for consumer internet businesses like Robinhood because it measures how much the company earns in transaction fees from each user. Furthermore, ARPU gives us unique insights as it's a function of a user's average order size and Robinhood's take rate, or "cut", on each order.

Robinhood's ARPU growth has been excellent over the last two years, averaging 16.4%. The company's ability to increase prices while growing its users demonstrates its platform's value, as its users are spending significantly more than last year. This quarter, ARPU grew 35.9% year on year to $104 per user.

Key Takeaways from Robinhood's Q1 Results

We were impressed by how significantly Robinhood blew past analysts' revenue and EPS expectations this quarter, driven by better-than-expected transaction volumes, net deposits, account additions, and Gold subscribers. We note it produced negative free cash flow due to some changes in working capital, but we see this as a short-term fluctuation on par with the normal course of business.

During the quarter, Robinhood announced it would launch a credit card product later this year, expanding its market opportunity.

Zooming out, we think this was an impressive quarter that should delight shareholders. The stock is up 4.9% after reporting and currently trades at $18.74 per share.