Should you buy Robinhood stock? 2-minute analysis

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Based on the latest share price, Robinhood has a market cap of 10.9 billion dollars.

With 6.2 billion of cash on the balance sheet and little debt, the enterprise value is around 4.7 billion.

Revenue over the last 12 months was 1.34 billion giving a valuation of 3.5 times sales but the company is still not profitable. Taking into account share based compensation of 812 billion the company produced a net loss of 1.29 billion over the last 12 months.

That said, Robinhood’s Q3 earnings report emphasized some positive developments and the stock did rally 8%.

Compared to Q2, total revenues increased 14%, transaction based revenues were up 3% and adjusted ebitda was positive at 47 million dollars.

Zoom out, however, and you get some perspective. Year over year total revenues were down, (-1%) and transaction based revenues dropped 22%. Taking into account share based compensation Robinhood was still not profitable and made a loss of -175 million.

To be fair, that figure is a vast improvement from last year’s loss of -1.3 billion.

That improvement is being driven by two things. First, Robinhood has laid off more than 20% of its workers. That’s led to a 69% drop in operating expenses. Second, higher interest rates are bringing in more interest income with net interest revenue increasing 103% year on year.

With $17 billion in interest generating assets according to Robinhoods CFO, Robinhood could even become profitable for real next year. Plus the $6 billion in cash gives it plenty of time to stage a recovery.

But, Robinhood’s brand was seriously tarnished during the GameStop debacle. And its payment for order flow business model doesn’t help, especially when markets are volatile. And this model is not even legal in much of europe.

Essentially, all of Robinhood’s improvements can be traced back to cost cutting and higher interest rates, rather than any significant turnaround in the company’s key products or business.

In fact, monthly active users dropped again to 12.2 million in Q3 which is a 35% drop from the previous year. Until investors learn to trust Robinhood again, it’s best to avoid this stock.

These are personal opinions not financial advice. See the full disclaimer on our website.