Here's Why Robinhood Stock Is a Buy Before July 30

Key Points

• Robinhood has grown rapidly over the past few years.
• Its ecosystem is expanding and economies of scale are kicking in.
• It still looks reasonably valued relative to its growth potential.
• 10 stocks we like better than Robinhood Markets ›

Robinhood's (NASDAQ: HOOD) stock has soared more than 350% over the past 12 months. That rally was driven by soaring stocks and rising crypto prices, which drew many retail investors back to its online trading platform and boosted its trading volumes.

Some investors might be reluctant to invest in Robinhood after those massive gains. However, it could still be worth buying before its next earnings report on July 30 for six simple reasons.

Image source: Getty Images. ## 1. It's expanding rapidly

From 2020 to 2024, Robinhood more than doubled its number of funded customers as its assets under custody (AUC) more than tripled. It achieved that growth trajectory even through a grueling slowdown in 2022 as rising interest rates chilled the stock and crypto markets. Its revenue grew at a robust compound annual growth rate (CAGR) of 32.5%.

| Metric | 2020 | 2021 | 2022 | 2023 | 2024 | | --- | --- | --- | --- | --- | --- | | Funded customers | 12.5 million | 22.7 million | 23.0 million | 23.4 million | 25.2 million | | AUC | $63 billion | $98 billion | $62 billion | $103 billion | $193 billion | | Revenue growth | 245% | 89% | (25%) | 37% | 58% |

Data source: Robinhood.

In the first quarter of 2025, Robinhood's number of funded customers rose 8% year over year to 25.8 million. Its total platform assets (a new metric that combines its AUC with the assets it gained from its acquisition of TradePMR last November) surged 70% to $221 billion.

If the Federal Reserve cuts interest rates again this year, more investors should pivot back toward stocks, options, and cryptocurrencies. That rotation should fuel its near-term growth.

2. Fewer regulatory challenges

Robinhood became a popular platform for retail investors because it offered commission-free trades. It can offer fee-free trades because it bundles together all of its orders and sells them to high-frequency trading firms that can squeeze slim profits out of those bulk trades.

That "payment for order flow" (PFOF) model attracted a lot of scrutiny from the Securities and Exchange Commission (SEC) under Chairman Gary Gensler from 2021 to 2025. Some investors even speculated the SEC could completely ban PFOF trades and cripple Robinhood's core business.

But that ban never happened, and Gensler's successor, Paul Atkins, recently withdrew all of the SEC's proposed regulations against PFOF trades. As those regulatory headwinds dissipate, Robinhood should have a clearer path for expanding its commission-free trading platform.

Story Continues## 3. It's gaining more subscriptions

Robinhood rolled out its premium Gold tier nearly nine years ago. For $5 a month or $50 a year, its members get $1,000 in interest-free margin, lower margin rates, higher interest rates on uninvested cash, bonuses on taxable deposits and IRA contributions, higher limits on instant deposits, access to Level II trading data, and other perks.

In the first quarter of 2025, its number of Gold subscribers grew 90% year over year to 3.2 million as its subscription revenue rose 65% to $38 million. That only accounted for 4% of Robinhood's top line, but it could gradually diversify its business away from its more volatile transaction-based revenues.

4. Robinhood's ecosystem is expanding

Over the past few years, Robinhood expanded its ecosystem with more crypto trading, options trading, and card-based banking services. It also rolled out AI-powered portfolio management tools, and it allowed its investors to trade "tokenized" versions (blockchain-based representations of underlying assets) of U.S. Treasuries, stocks, and ETFs.

Robinhood recently added private start-ups like OpenAI and SpaceX to that tokenization strategy. Investors don't get equity in those start-ups through those tokens -- which are pinned to a "special purpose vehicle" that holds those private shares -- but it grants them some indirect exposure ahead of their public debuts.

5. Its margins are improving

From 2020 to 2024, Robinhood's gross margin rose from 88% to 94.4%. Its adjusted EBITDA margin -- which turned red in 2021 and 2022 -- jumped from 2.3% to 48.4%.

| Metric | 2020 | 2021 | 2022 | 2023 | 2024 | | --- | --- | --- | --- | --- | --- | | Gross margin | 88% | 91.3% | 86.8% | 92.2% | 94.4% | | Adjusted EBITDA margin | 2.3% | (89%) | (6.9%) | 28.7% | 48.4% |

Data source: Robinhood, Macrotrends.

That expansion was driven by a reduction in its stock-based compensation expenses (the primary weight on its collapsing margins in 2021), its growth in higher-margin subscription revenues, and rising interest income from its cash sweep and margin lending services. It also generated a higher mix of its revenues from its higher-margin crypto and options trades (as opposed to its lower-margin equity trades) as economies of scale kicked in.

6. The valuation is reasonable relative to its growth

From 2024 to 2027, analysts expect Robinhood's revenue to grow at a CAGR of 18% as its adjusted EBITDA rises at a CAGR of 23%. We should take those estimates with a grain of salt, but it could continue to pull investors away from traditional brokerages with its free trades, gamified approach to investing, and expanding lineup of fintech services.

With an enterprise value of $91.3 billion, Robinhood's stock might seem a bit pricey at 50 times this year's adjusted EBITDA. But if you expect the current bull market to generate strong tailwinds for its business, it's a good idea to pick up some shares before its next earnings report.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Here's Why Robinhood Stock Is a Buy Before July 30 was originally published by The Motley Fool

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