GM. This is Milk Road, the daily newsletter that's the co-pilot for your flight through crypto turbulence.
Here’s what we’ve got for you today:
- ✍️ Why HOOD got punished for winning.
- 🎙️ The Milk Road Show: The Algorand Bull Case Everyone Is Missing.
- 🍪 Novogratz: the CLARITY Act passes, and it happens in August.
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ROBINHOOD'S BEST QUARTER EVER GOT PUNISHED 🪶
Robinhood just delivered the best quarter in company history.
… and Wall Street responded by cutting its price targets.
This is the exact setup our lead analyst M0xt laid out two weeks before the numbers landed.
Because HOOD has spent two years trading on its multiple, not its earnings.
(Multiple = what investors are willing to pay for each dollar of profit.)
The stock re-rated the whole way from "discount brokerage" to "fintech super app," and by early July it changed hands around 55x trailing earnings (right on top of its own 3-year average).
At that price there's no discount left to close.
A great quarter doesn't move it - only forced estimate hikes do.
Which is a piece of this puzzle that’s worth remembering, given this quarter was great!
- HOOD revenue: $1.31B, up 32% (record).
- Adjusted EBITDA: $741M, up 35%, at a 57% margin.
- Diluted EPS: $0.62, up 48%.
Strip out the $0.14 of one-time gains from the Robinhood Ventures deconsolidation (they sold down their stake in the fund and stopped consolidating it) and you land at an earnings per share of $0.48.
Still above every consensus estimate published going in, which clustered around $0.43 to $0.45.
On top of that…
- Options grew 29% to $342M.
- Equities revenue grew 95% to $129M.
- Event contracts (Robinhood's prediction markets) did $156M in revenue, with contract volume up more than 10x year over year.
And crypto revenue fell 38% to $100M... while the quarter overall was still a record.
(I.e. a year ago crypto was 30% of transaction revenue. Today it's 13%, and Robinhood’s overall transaction revenue still grew 44%.)
All told - the company now runs 13 separate businesses doing $100M or more in annualized revenue, with its Legend product and credit card joining the group this quarter.
So we’ve got record revenue, record margins, and a beat on every estimate going in.
Yet the price targets dropped?
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ROBINHOOD'S BEST QUARTER EVER GOT PUNISHED (P2) 🪶
Barclays cut from $122 to $105. Goldman cut from $137 to $118. Needham cut from $123 to $120.
All three had raised those same targets in the weeks right before the release. All three kept their buy ratings.
Which leaves the multiple doing all of the work.
On June 30 the stock closed at $100.28 against $2.07 of trailing earnings per share, so you paid about 48x earnings. It's now near $90 against $2.27, so you pay under 40x.
Earnings went up while the price went down.
(The 55x everyone kept pointing at just isn't there anymore.)
Barclays cut specifically on a slowdown in new accounts through July, and Robinhood's own commentary puts July net deposits tracking toward the $4B area against $10.1B in June.
Robinhood's answer is that July average daily volumes for equities, options and event contracts are all running in a similar area to a record Q2, and that the $4B figure excludes Trump Accounts entirely.
Barclays conceded the volume point in its own note, even while trimming its target.
So the deposit slowdown is real, but the volume slowdown hasn't turned up yet.
ICYMI: M0xt gave Milk Road PRO members the buy signal on HOOD back in April at $69.65.
All four of our analysts are long the stock today, and every one of them is up between 17% and 29% on it.
While HOOD itself sits ~42% below the ~$154 high it touched last October.
That's what getting in early buys you:
Enough margin of safety that a 40% drawdown still leaves you comfortably in profit.
If you want M0xt's full verdict on these numbers plus the ability to track every position in his portfolio in real time, you can try Milk Road PRO for a buck for 7 days.
BITE-SIZED COOKIES FOR THE ROAD 🍪
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Kevin Warsh: "Five years of high inflation have left a mistaken impression that's hard to shake. That the Fed's implicit inflation target was somehow above 2%."
Lyn Alden: You can compound at 20% returns buying businesses with zero growth. Here’s how…
Novogratz: the CLARITY Act passes, and it happens in August. "I think it's going to be a last-minute small little compromise."
Get 15% off with code “MILKRO_15.” The European Blockchain Convention is back in Barcelona on September 16-17.**
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