Will Robinhood’s equity for all approach pay off?

Welcome to Stock Takes, my thrice-monthly take on an individual stock. I look at the big picture, unlike Wall Street analysts who are geared to earnings, and the media that focuses more on news value.

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Note: Stock Takes will not publish in mid-April, as I take a break, and our next issue is scheduled for around April 25.

Starting off as a company aiming to “democratize finance for all” in 2013, initially providing commission-free trading for stock investors, Robinhood Markets, Inc. (NASDAQ:HOOD) has gone on to more diverse and international offerings, including crypto and derivatives. For last year’s U.S. presidential election, the fintech company even offered an event contract allowing participants to bet on the outcome of the race.

According to Robinhood, “We were founded on the ideal that the rich shouldn't get a better deal, so we treat people fairly and strive to deliver exceptional value.” Vladimir Tenev, Robinhood’s chief executive officer, and Baiju Bhatt co-founded the company after learning that retail investors were paying more in commissions for trading stocks than big institutional traders. The two who, after graduating from Stanford, had initially moved to New York City to sell trading software to hedge funds later came out with an app that would facilitate access to financial markets for everyone.

At the Citizens JMP Technology Conference in March, Tenev said that the co-founders saw a gap in. the market with the pricing, when they started the company. They also observed that there was a “paradigm shift happening in consumer products” with the introduction of smart phones that allowed mobile-based companies like Uber and Instagram to take shape. “And our bet was that this would be big for financial services. The phone would be the primary interface that you engage with your finances through. And I think that was a contrarian bet.”

The company has faced its share of controversy, inviting scrutiny from regulators for its business model and for its “gamification” approach that critics allege lures unsophisticated traders. It also got a lot of bad publicity, and legal scrutiny, for freezing trading in GameStop stock in January 2021.

The fintech company, which boasted net deposits of $50.5 billion at the end of 2024 (including customer cash deposits and asset transfers), is now looking to take on the banking sector, and get into wealth management and banking, providing access to checking and savings accounts with competitive interest rates of 4% on deposits. According to Robinhood, its banking services will even deliver cash to customers’ homes so that they can avoid any threat from ATM muggings. While Robinhood is not FDIC-insured, the company will be offering its banking services through Coastal Community Bank, which has the government insurance. Robinhood also offers its Robinhood Gold Credit Card through this bank.

Robinhood debuted on the public markets on July 29, 2021, with its stock closing at $34.82 that day, down about 8% from its IPO price of $38, and has been through ups and downs since then. During this week’s stock market rout, after the Trump tariffs were announced, the stock closed at $34.51 on April 4, down from $41.62 at the beginning of the week. Does this decline present an opportunity for investors to get into Robinhood stock, with the company enjoying its first full year of positive net income in 2024?