On Tuesday, Mizuho (NYSE:MFG) reaffirmed its Outperform rating and $35.00 price target for Robinhood Markets (NASDAQ:HOOD), following the company's announcement of its largest acquisition to date. Robinhood has agreed to purchase TradePMR, a move that Mizuho believes aligns well with the brokerage's strategic goals.
The acquisition, valued at $300 million, brings TradePMR's network of 350 firms and over 1,000 Registered Investment Advisors (RIAs) under Robinhood's umbrella, along with $40 billion in assets under administration (AUA). Mizuho sees this as a significant step for Robinhood, enabling it to penetrate the rapidly expanding RIA market, which currently has a total addressable market (TAM) of approximately $7 trillion.
Mizuho highlights that the current RIA market is predominantly controlled by established players like Schwab, with incumbents holding around 75% of the market share. The acquisition of TradePMR is expected to help Robinhood diversify its user base by adding advisory capabilities that appeal to less active traders, complementing its existing active trader demographic.
The firm also notes that the new addition will likely enhance Robinhood's reach among its core customer segments, Millennials and Generation Z, by accelerating the platform's penetration into this demographic. Mizuho estimates that the acquisition could potentially add approximately $60 million in annual revenue growth, assuming a take rate of around 15 basis points on the $40 billion AUA, which would translate to a 2-3% increase in annual growth upon the deal's completion.
In other recent news, Robinhood Markets has been the focus of numerous developments. Notably, the company's shares were upgraded from Hold to Buy by Needham, setting a price target of $40. This optimistic outlook is tied to the expected expansion of Robinhood's cryptocurrency offerings and potential changes at the SEC. Other financial firms, including Piper Sandler, Deutsche Bank (ETR:DBKGn), and JMP Securities, have also adjusted their price targets for Robinhood, reflecting anticipated growth in the cryptocurrency market and the company's robust October metrics.
Robinhood has reported strong financial growth for Q3 2024, with net deposits hitting $10 billion for the third consecutive quarter and customer assets under custody reaching a record $152 billion. The company's Q3 revenues increased by 36% year-over-year to $637 million, and adjusted EBITDA nearly doubled to $268 million.
In addition, the company launched new trading products, including Index Options, Futures, and the desktop platform Robinhood Legend, which were met with strong customer demand. Robinhood's chief legal and compliance officer, Dan Gallagher, is being considered for the chair of the Securities and Exchange Commission (SEC) in the upcoming Trump administration.
InvestingPro Insights
Robinhood Markets' recent acquisition of TradePMR aligns well with the company's strong financial performance and growth trajectory. According to InvestingPro data, Robinhood's revenue grew by 35.74% in the last twelve months, reaching $2.408 billion. This impressive growth is further reflected in the company's stock performance, with a remarkable 332.1% price return over the past year.
InvestingPro Tips highlight that Robinhood's net income is expected to grow this year, and analysts predict the company will be profitable. This positive outlook supports Mizuho's Outperform rating and aligns with the strategic expansion into the RIA market through the TradePMR acquisition.
It's worth noting that Robinhood's stock is trading near its 52-week high, with a price-to-earnings ratio of 58.43. While this might suggest a high valuation, the company's strong revenue growth and potential for market expansion could justify the premium.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Robinhood Markets, providing deeper insights into the company's financial health and market position.
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