On Thursday, Goldman Sachs upgraded Robinhood Markets (NASDAQ:HOOD) stock to a Buy rating from Neutral, with a new price target set at $46.00. This change reflects a significant potential upside of 19% from the previous target, based on a 30.5 times forward earnings estimate.
The firm views Robinhood as having transitioned from a rapidly growing, occasionally profitable online brokerage primarily serving younger investors to a leading asset compounder with increasing total addressable market (TAM).
The upgrade is supported by the belief that Robinhood will continue to capture wallet share from highly-profitable active traders and has the potential to expand its market into wealth management and international sectors.
Goldman Sachs anticipates Robinhood to achieve sustainable GAAP profitability and to see its margins rise to levels comparable with its peers over time, despite ongoing strategic investments. The firm projects a 14% annual revenue growth and a 12% increase in adjusted earnings from 2024 to 2026, outpacing the expected growth for comparable fintech and brokerage firms.
The analyst also noted that Robinhood's revenue per average monthly active user (MAU, ARPU) is expected to grow approximately 19% from 2024 to 2026, following a more than twofold increase from 2022 to the estimated figures for 2024. Goldman Sachs' revenue projections for 2025 and 2026 are 8% higher than the Visible Alpha consensus.
The firm suggests that their near-term estimates might be conservative given the strong and improving retail trading activity. In a long-term upside scenario where Robinhood capitalizes on its growth opportunities and benefits from a cyclically robust retail trading environment, ARPU could potentially increase by an additional 55% from the base case 2024 estimates by 2030, aligning Robinhood's margins closer with those of its brokerage peers.
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