Is the SpaceX IPO Enough to Rescue Robinhood Stock?
Key Points
Robinhood continues to innovate and offer new products for the retail investor.
It's still highly reliant on cryptocurrency, and prediction markets is one of its major growth drivers right now.
It's also launching more traditional products, and it recently got approval to underwrite stocks.
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Robinhood Markets (NASDAQ: HOOD) was one of five brokerages chosen to offer Space Exploration Technologies (SpaceX) in its record-shattering initial public offering (IPO) last week. Robinhood stock is 36% off its highs, but it's up more than 6% since the IPO. Can SpaceX breathe new life into Robinhood stock?
What SpaceX IPO access does for Robinhood
Robinhood was the original fee-free trading app, setting a trend for the broader investing community. It's been at the forefront of fintech innovation, helping to level the playing field for retail investors and providing access to different types of instruments that are usually left to institutional investors.
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It's not surprising that it offers IPO access, another area where retail investors have historically been left out while early investors took home gains. And unlike other brokerages that offer IPO access, it doesn't require a minimum balance or net worth.
Image source: Getty Images.
Offering access to the SpaceX IPO is a natural progression for Robinhood, and it may have onboarded new investors to its platform who were interested in taking part. Having this new cadre of users gives Robinhood the opportunity to convert them into engaged members who adopt other products as well.
It's more than SpaceX
SpaceX stock offers value to Robinhood, but there's still a lot more going on. The main reason Robinhood stock is down is that it's highly correlated with cryptocurrency, which plays a large role in its growth -- or decline. Bitcoin (CRYPTO: BTC) is down 38% over the past year, and Robinhood's cryptocurrency revenue fell 47% from last year in the first quarter.
It also has several other risky businesses, including options trading and prediction markets. Prediction markets revenue increased 320% in the first quarter, but like cryptocurrency, that could be highly volatile.
The company has also been moving into more typical financial services, like credit cards and bank accounts. More recently, Robinhood received approval to underwrite stocks, which is a huge step for the trading platform. Underwriting is the domain of investment banks, and Robinhood has huge ambitions to expand into all sorts of directions. Investment banks play an important role in markets, which provides Robinhood with greater stability.
The long-term play
The SpaceX IPO won't be enough to rescue Robinhood stock, but the innovative force behind it makes it a stock worth considering. If the platform expands enough that the more stable products offset the risk of the other products, it could be a formidable player on the fintech scene over the long term.
It's not the right fit for the conservative investor, or even most investors, but if you have a high risk tolerance and a long time horizon, a small position in Robinhood stock is reasonable.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
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