Could Buying Robinhood Stock Today Set You Up for Life?

Everyone hopes to uncover the next Nvidia or Tesla, a stock that skyrockets and turns early investors into millionaires. It's tempting to see these stellar returns and imagine the wealth you could have built if you'd bought those stocks early.

Robinhood (NASDAQ: HOOD) may be one of those stocks for some investors. About two years ago, the stock traded around $8 per share, and today it's trading at $115 per share. In other words, a $10,000 investment would be worth $143,750 today.

But that's the past. Could investing in Robinhood today be the ticket to setting you up for life? Let's dive into the business and explore the potential Robinhood offers investors today.

Image source: Getty Images.

Robinhood's evolution

Robinhood has experienced an impressive turnaround in the past several years. A few years ago, the company struggled with the meme-stock frenzy and the regulatory scrutiny that followed. Customers were unhappy, and regulators threatened its payment for order flow business model, which could have taken down its primary revenue source.

Since then, Robinhood has transformed its business. The company has attracted significant capital to its platform by using elevated interest rates to encourage customers to bring funds to the platform. This strategy has proven to be quite effective. Since the start of 2024, Robinhood's total platform assets have grown from $102 billion to $343 billion as of the end of October.

A key aspect of Robinhood's growth is its Gold membership account. Customers can pay $5 per month or $50 per year to earn higher interest rates and other benefits. This subscription service provides Robinhood with a steady stream of income. Additionally, users who subscribe to Robinhood Gold have more assets and engage with the platform more frequently than non-subscribers.

Recent earnings results saw solid growth

Robinhood's recent quarterly results were solid, with revenue of $1.27 billion and earnings per share of $0.61, both slightly ahead of consensus estimates. Its quarterly results were helped by solid transaction revenue growth along with an increase in net interest income.

Transaction-based revenue surged 129% to $730 million, driven by growth in cryptocurrency (up 300%), options (50%), and equities (132%). Meanwhile, its average revenue per user (ARPU) rose 82% to $191, while net interest revenue increased 66% to $456 million.

HOOD Revenue (TTM) data by YCharts

What's next for Robinhood

Robinhood continues to roll out new offerings, too. For example, successfully monetizing its prediction markets product could be a powerful new revenue source for the company. Its prediction markets business surpassed $100 million in annualized revenue in less than a year. Using October volume, analysts at Bernstein noted that this business is tracking toward a $300 million run rate.

CEO Vlad Tenev noted that Robinhood Prediction Markets had traded 4 billion event contracts all-time, with over 2 billion in the third quarter alone. The company aims to expand its prediction markets product into countries outside the U.S., engaging with overseas regulators such as the U.K.'s Financial Conduct Authority.

Robinhood is also looking to expand its addressable market by offering retail investors access to asset classes that have traditionally been reserved for institutions. The company announced the filing of an initial registration statement for Robinhood Ventures Fund I, a closed-end fund. This vehicle aims to provide retail investors with exposure to private companies. It is also planning to create a route for amateur investors to invest in private AI companies.

Could buying Robinhood set you up for life?

Relying on any single stock to set you up for life is a tall task. You would need staggering returns or a hefty initial investment in a single stock for this to happen. For example, if you buy $10,000 in Robinhood stock today, you would need it to grow at a nearly 26% compound annual growth rate for the next 20 years to get to $1 million.

Robinhood has done an excellent job growing its business after heightened scrutiny a few years ago. The company continues to expand into new markets, and I'm optimistic about what the future holds for Robinhood. The stock isn't cheap, priced at 47 times this year's projected earnings per share, reflecting the optimistic growth projections investors have today.

That said, I like Robinhood and think it has solid growth potential. While you don't want to rely on any single investment to build wealth, I like Robinhood stock as a small piece of a well-diversified portfolio.

Courtney Carlsen has positions in Nvidia and Robinhood Markets. The Motley Fool has positions in and recommends Nvidia and Tesla. The Motley Fool has a disclosure policy.