Robinhood (HOOD)

Financial services company Robinhood (NASDAQ:HOOD) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 50% year on year to $927 million. Its GAAP profit of $0.37 per share was 13.5% above analysts’ consensus estimates.

Company Overview

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

Financial technology companies benefit from the increasing consumer demand for digital payments, banking, and finance. Tailwinds fueling this trend include e-commerce along with improvements in blockchain infrastructure and AI-driven credit underwriting, which make access to money faster and cheaper. Despite regulatory scrutiny and resistance from traditional financial institutions, fintechs are poised for long-term growth as they disrupt legacy systems by expanding financial services to underserved population segments.

Robinhood’s competitors include Charles Schwab (NYSE:SCHW), Fidelity (NYSE:FNF), Interactive Brokers (NASDAQ:IBKR), Coinbase (NASDAQ:COIN), and private companies M1 Finance and Webull.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Robinhood’s 27% annualized revenue growth over the last three years was exceptional. Its growth surpassed the average consumer internet company and shows its offerings resonate with customers, a great starting point for our analysis.

This quarter, Robinhood reported magnificent year-on-year revenue growth of 50%, and its $927 million of revenue beat Wall Street’s estimates by 1.2%.

Looking ahead, sell-side analysts expect revenue to grow 13.1% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is healthy and implies the market is forecasting success for its products and services.

User Growth

As a fintech company, Robinhood generates revenue growth by increasing both the number of users on its platform and the number of transactions they execute.

Over the last two years, Robinhood’s funded customers, a key performance metric for the company, increased by 4.1% annually to 25.8 million in the latest quarter. This growth rate lags behind the hottest consumer internet applications. If Robinhood wants to accelerate growth, it likely needs to engage users more effectively with its existing offerings or innovate with new products.

In Q1, Robinhood added 1.9 million funded customers, leading to 7.9% year-on-year growth. The quarterly print was higher than its two-year result, suggesting its new initiatives are accelerating user growth.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns in fees from each user. ARPU also gives us unique insights into the average transaction size on Robinhood’s platform and the company’s take rate, or "cut", on each transaction.

Robinhood’s ARPU growth has been exceptional over the last two years, averaging 43%. Its ability to increase monetization while growing its funded customers demonstrates its platform’s value, as its users are spending significantly more than last year.

This quarter, Robinhood’s ARPU clocked in at $145. It grew by 38.7% year on year, faster than its funded customers.

A company’s gross profit margin has a significant impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors can determine the winner in a competitive market.

For fintech businesses like Robinhood, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include transaction/payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard customers, such as identity verification.

Robinhood’s gross margin is one of the best in the consumer internet sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and marketing during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 89.8% gross margin over the last two years. That means Robinhood only paid its providers $10.20 for every $100 in revenue.

Robinhood produced a 91.3% gross profit margin in Q1, up 4 percentage points year on year. Robinhood’s full-year margin has also been trending up over the past 12 months, increasing by 4.4 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Consumer internet businesses like Robinhood grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

Robinhood is extremely efficient at acquiring new users, spending only 10.3% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that it has a highly differentiated product offering and strong brand reputation, giving Robinhood the freedom to invest its resources into new growth initiatives while maintaining optionality.

Robinhood has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 43.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Robinhood’s EBITDA margin rose by 64.7 percentage points over the last few years, as its sales growth gave it immense operating leverage.

In Q1, Robinhood generated an EBITDA profit margin of 50.7%, up 10.7 percentage points year on year. The increase was solid, and because its EBITDA margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Robinhood’s full-year EPS flipped from negative to positive over the last three years. This is a good sign and shows it’s at an inflection point.

In Q1, Robinhood reported EPS at $0.37, up from $0.18 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Robinhood’s full-year EPS of $1.76 to shrink by 26.3%.

Although EBITDA is undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Robinhood has shown robust cash profitability, driven by its attractive business model and cost-effective customer acquisition strategy that enable it to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 14.5% over the last two years, quite impressive for a consumer internet business.

Taking a step back, we can see that Robinhood’s margin expanded meaningfully over the last few years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Robinhood’s free cash flow clocked in at $631 million in Q1, equivalent to a 68.1% margin. Its cash flow turned positive after being negative in the same quarter last year, building on its favorable historical trend.

Robinhood reported $8.86 billion of cash and $9.10 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.65 billion of EBITDA over the last 12 months, we view Robinhood’s 0.1× net-debt-to-EBITDA ratio as safe. We also see its $6.01 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Robinhood top analysts’ revenue and EPS expectations this quarter. On the other hand, its EBITDA missed. Overall, this quarter was mixed. The stock remained flat at $48.89 immediately following the results.

Updated: May 21, 2025 at 10:20 PM EDT

Before deciding whether to buy Robinhood or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Robinhood is a cream-of-the-crop consumer internet company. For starters, its revenue growth was exceptional over the last three years. And while its projected EPS for the next year is lacking, its admirable gross margins are a wonderful starting point for the overall profitability of the business. On top of that, Robinhood’s impressive EBITDA margins show it has a highly efficient business model.

Robinhood’s EV/EBITDA ratio based on the next 12 months is 29x. Analyzing the consumer internet landscape today, Robinhood’s positive attributes shine bright. We think it’s one of the best businesses in our coverage and like the stock at this price.

Wall Street analysts have a consensus one-year price target of $62.08 on the company (compared to the current share price of $63.30).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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