Robinhood's Transition: From ZIRP to PIRP

According to Bernstein analysts, while Robinhood (NASDAQ:HOOD)'s rise in 2021 was tied to the Zero Interest Rate Policy (ZIRP), the platform is now benefiting from a "Peak Interest Rate Policy" (PIRP) as rates start to decline.

> "HOOD has not just survived a winter, and is now evolving to be a sustainable business with improving economics," said Bernstein in a note Thursday.

Robinhood stock has surged approximately 30% in the past month and nearly 100% year-to-date. Bernstein highlights five key reasons behind Robinhood's recent breakout:

1. Growing Assets, Not Just Trading Revenues

Robinhood's assets under custody have grown to $140 billion, up 57% year-over-year by Q2 2024. "Assets per customer have more than doubled from $2,800 to $5,800 per account," Bernstein noted. The company is attracting new deposits and incentivizing transfers with offerings like a 1% incentive for transfers and competitive yields on uninvested assets.

2. Transaction Revenues

Trading volumes have rebounded across Robinhood's key products. Equity trading is up 57% year-over-year, while crypto trading has jumped 135%. Bernstein highlights that "transaction revenues are back up to approximately 50% of total revenues after bottoming at 40% in Q2 2023."

3. Crypto Momentum

Robinhood's crypto revenues have surged 160% in the first half of 2024. Bernstein notes that Robinhood is poised to benefit further from the next crypto bull cycle, especially after acquiring Bitstamp, which adds revenue streams in stablecoins, staking, and derivatives.

4. Product Innovation and Expansion

The global expansion and product innovation by Robinhood are paying off. New services like Robinhood Wallet, improved offerings for Gold customers, and a retirement accounts program have been introduced. The company continues shipping new products and aggressively expanding globally, with recent rollouts in the UK and Europe.

5. Strong Operating Leverage

Robinhood has improved its cost structure, reducing operating expenses (excluding SBC) from 160% of revenues in Q1 2022 to 60% in Q2 2024. As revenues rise and 90% of costs remain fixed, the company experiences strong operating leverage. Bernstein expects an estimated positive operating income of ~$900 million for 2024.

Bernstein maintains an Outperform rating on Robinhood, with a price target of $30.