On Thursday, JPMorgan (NYSE:JPM) updated its financial model for Robinhood Markets (NASDAQ:HOOD) stock, resulting in a raised price target from $17.00 to $21.00, while maintaining an Underweight rating. The adjustment comes as the firm prepares for Robinhood's third-quarter 2024 earnings, setting a new price target for December 2025.
The firm noted that after a volatile early August, which saw an increase in trading volumes and deposits, September experienced a slowdown. Despite this, JPMorgan models a 30% year-over-year increase in equity Daily Average Revenue Trades (DARTs) and a 50% rise in both options and crypto DARTs. These factors are expected to contribute to around $325 million in transaction revenue.
In comparison, Interactive Brokers (NASDAQ:IBKR) reported a 35% increase in options volumes and a 22% rise in equity volumes year-over-year for the third quarter of 2024. These figures serve as a benchmark for retail trading activity.
JPMorgan's analysis suggests that while there is debate over the sustainability of Robinhood's net interest revenue in a declining rate environment, the overall positive market conditions and asset growth could help mitigate any potential decreases in rates for net interest income (NII) revenue lines.
The firm anticipates securities lending revenue rates to follow a trend similar to the Federal Reserve's dot plot into fiscal year 2025, supported by an expanding margin book.
For the third quarter of 2024, Robinhood's earnings call indicated a slower margin and securities lending environment, attributed to falling rates and a decrease in "hard to borrow" securities. JPMorgan projects Robinhood's expenses to be slightly above the midpoint of the annual guide at $488 million for the third quarter, factoring in increased share-based compensation costs, as well as expenses related to mergers and acquisitions and legal matters.
In other recent news, Robinhood Markets Inc (NASDAQ:HOOD). has been making significant strides in the financial services sector. The company reported a 40% year-over-year increase in revenue to $682 million and a record earnings per share of $0.21 for the second quarter of 2024. Furthermore, Robinhood's net deposits reached $13 billion, marking a 41% annual growth rate.
Robinhood has launched a desktop trading platform, 'Robinhood Legend,' and expanded its mobile app capabilities to include futures and index options trading. This move is part of the company's strategy to attract more active traders and compete with traditional brokerages. Robinhood also plans to introduce index options and futures trading, as well as a new web-based trading platform.
InvestingPro Insights
Robinhood Markets (NASDAQ:HOOD) has shown remarkable performance in recent times, aligning with JPMorgan's optimistic outlook. According to InvestingPro data, the company's revenue growth stands at an impressive 34.17% over the last twelve months as of Q2 2024, with quarterly revenue growth reaching 40.33% in Q2 2024. This robust growth supports JPMorgan's projection of increased trading volumes and revenue.
InvestingPro Tips highlight that Robinhood's net income is expected to grow this year, and analysts predict the company will be profitable. This aligns with JPMorgan's positive outlook on the company's financial performance. Additionally, Robinhood's stock has shown a strong return over the last month and is trading near its 52-week high, reflecting investor confidence in the company's prospects.
It's worth noting that Robinhood's P/E ratio stands at 81.79, which might be considered high. However, an InvestingPro Tip suggests that the company is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of 0.61, indicating potential undervaluation considering its growth prospects.
For investors seeking more comprehensive insights, InvestingPro offers 12 additional tips for Robinhood Markets, providing a deeper understanding of the company's financial health and market position.
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