Where Will Robinhood Stock Be in 5 Years?

Key Points

• Robinhood stock now has a market cap of $100 billion and is up more than 400% in the past year.

• It's growing revenue per existing customer at a rapid rate.

• The stock's future performance will depend on how the broad market performs in the next five years.

• 10 stocks we like better than Robinhood Markets ›

Robinhood Markets (NASDAQ: HOOD) is now one of the largest financial services companies in the world. Saying that a decade ago would have sounded absurd. Yet, today, the discount broker focused on mobile trading has a market cap of $108 billion, closing in on rivals such as Charles Schwab and some of the large legacy banks. Its stock is up an astounding 440% in the past 12 months.

With an easy-to-use application, growing features, and robust cashback offerings, Robinhood is seeing a surge in net deposits for its brokerage and financial services offerings. But what sort of opportunities does Robinhood still have left? Let's try to project where Robinhood stock will be in five years, and whether it is a buy today.

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Increased user penetration

If you look at Robinhood's growth in total funded customers, it may not seem like a hypergrowth company. During the 2021 stock market run, the broker peaked at in between 22 million and 23 million customers. In 2022 and 2023, its level of customers did not grow along with the bear market for stocks. Today, total customers have begun to move higher again -- hitting 26.5 million in the second quarter -- but the number isn't much higher than what it was 2021.

However, it isn't Robinhood's total number of customers that is driving financial growth, but growing penetration for financial services from existing users. Robinhood's total assets on the platform have grown from just $100 billion at the peak in 2021 to $300 billion last month, meaning that deposits per customer have grown quickly in the last few years. More deposits mean more trading from customers, which leads to more revenue.

Robinhood's premium services keep growing in adoption as well. Robinhood Gold, a subscription that costs $5 a month and offers better perks such as high interest rates on deposits and better instant deposits, hit 3.48 million subscribers last quarter. 13.1% of customers now use Robinhood Gold, up from 8.2% in the same quarter a year ago.

Image source: Getty Images.

Riding the wave of markets

As a stock, options, and cryptocurrency brokerage, Robinhood's business is going to ride the investing cycle. If stocks fall, its total assets under custody will fall, leading to lower revenue and interest income. As the opposite occurs, its revenue will begin to grow again.

We can see this trend in its long-term revenue chart. Robinhood's revenue was soaring in 2020 and 2021. It took a breather in 2022 and 2023, and has begun to soar to all-time highs in the last few quarters. Taking the long view, Robinhood's revenue is up over 1,000% since 2020, making it one of the fastest-growing financial services companies in the world.

At the same time, Robinhood is finally turning a bottom-line profit. The company had a net loss of over $2 billion in 2022. Over the last 12 months, it had a positive net income of $1.78 billion. This puts Robinhood on solid financial footing and proves the discount brokerage model with free commissions can work at scale. Investors should track this net income figure closely to see how it changes when the market inevitably goes through a downturn.

HOOD Net Income (TTM) data by YCharts.

Where will Robinhood stock be in five years?

Figuring out where Robinhood stock will trade in five years is not easy. For one, the company's financial performance will at least somewhat mirror the path of the stock market. If the stock market goes into a drawdown at some point in the next five years -- bear markets happen regularly and usually multiple times a decade -- then Robinhood's revenue and earnings growth may stall out for a while, along with its stock price.

Right now, the S&P 500 trades at a high average price-to-earnings ratio (P/E) of 31 relative to its historical levels. While this does not mean a crash is imminent, it does make it more likely than not that stock market performance will be worse over the next five years than in the previous five. Again, this could lead to slowing growth for Robinhood.

Another data point to look at is Robinhood's own P/E ratio of 62, which is twice the size of the S&P 500 average. This indicates huge expectations from investors for future growth at Robinhood going forward. For that reason, I don't think it's likely that Robinhood's stock price will be much higher in five years than it is today. That makes it a stock that investors should avoid for the time being.

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Charles Schwab is an advertising partner of Motley Fool Money. Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab and recommends the following options: short December 2025 $95 calls on Charles Schwab. The Motley Fool has a disclosure policy.