Robinhood Markets (NASDAQ:HOOD) has had a year to forget. HOOD stock opened trading around $35 per share last summer and briefly hit a peak of $85 per share. That seems like a distant memory now; HOOD stock currently sells for less than $15 per share.
The company became notorious for its activities in handling the short squeeze in GameStop (NYSE:GME) stock last year. When Robinhood took away the buy button for GME stock, many customers stopped trading through Robinhood’s app.
That was hardly the end of the company’s success however. In fact, it’s worth noting that Robinhood’s initial public offering (IPO) didn’t happen until after the GameStop squeeze drama had ended. So that’s hardly the reason why Robinhood has seen its fortunes go south lately.
Rather, a bigger issue is that trading activity just isn’t as high as it was last year. That’s particularly true in cryptocurrency; for much of last year, Robinhood generated a large portion of its revenues from Dogecoin (CCC:DOGE-USD) trading in particular. With Dogecoin and other meme cryptos in a slump, trading activity has diminished, and so with it, Robinhood’s profitability.
Stagnation Since The Meme Stock Boom
Around the time when the AMC (NYSE:AMC) and GameStop controversy hit its peak, Robinhood was around 21 million monthly active users. The app was routinely among the most popular in the app stores. Robinhood enjoyed a cultural moment.
Since then, however, Robinhood’s figures have generally started moving in the wrong direction. As of now, Robinhood is closer to 18 million monthly active users. Part of that is likely due to the social media movement to leave Robinhood after the infamous GameStop remove the buy button incident. However, we’re a year removed from that event now, and Robinhood is still struggling to get its user numbers back up.
A big piece of this is likely due to what is working and not working on Wall Street right now. Cryptocurrencies are out of favor at the moment. So are meme stocks such as GameStop. Technology shares have also been in a slump, at least up until the past week or so. The market’s new leading stocks, such as oil and gas companies, tend to be less popular with the younger tech-savvy market participants that favor Robinhood’s app.
Some New Features on the Way
Robinhood hasn’t stopped innovating, however. It is now planning to launch several new features which will help it catch up with older and more established brokerage firms.
One of these is a Robinhood cash card. This will allow users to purchase goods with funds directly from their Robinhood brokerage account. There will also be incentives around using the cash card frequently. This isn’t a novel feature for brokerage accounts, however it will help level the playing field between Robinhood and other companies.
Another new feature will be for stock lending. Robinhood users will be able to lend out their shares to short sellers, and earn interest on that loan for doing so. This is another feature that full-service brokerages already have, and will make Robinhood more competitive in matching it.
However, this may draw controversy for Robinhood. After all, many traders there are focused on meme stocks which have a high degree of short sellers involved in those companies as well. Some traders may see Robinhood opening up securities lending as something that will aid the short sellers and harm the meme stocks. Given Robinhood’s fraught history in terms of handling the GameStop situation, this may require careful messaging on Robinhood’s part to not alienate certain customers.
HOOD Stock Verdict
I’m generally of the view that if a company has a large and engaged user base, it has a shot at success. Say what you will of Robinhood’s missteps over the past year. Mistakes were made along the way.
However, Robinhood still has close to 18 million monthly active users. That’s a huge number. Robinhood’s reliance on meme stocks and cryptocurrencies in 2021 doesn’t appear to have been a lasting formula for success. But all those users are still there. Robinhood just needs to find the right business model to fit its customer base. Perhaps things such as the cash card will be a big part of the solution.
When HOOD stock opened trading around $35 per share, that required some pretty optimistic assumptions to make sense. At $13, however, the math is much less demanding for the bulls. As such, while Robinhood still has a lot to prove, a speculative long position here might make some sense.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.