amit@amitisinvesting
$HOOD
Let's talk about the Robinhood selloff.
So, this is confusing on multiple levels but I will try to breakdown what I think is happening.
- First, I discussed this in my end of year substack but I had hedged a majority of my position with deep ITM calls. The reasoning behind this was seeing the lack of crypto volatility and realizing that could unjustifiably hurt $HOOD but also because the position had become too big for me to go to sleep easily at night without hedging it. That decision ended up helping out through this volatility.
- The core reason for this drawdown seems to be, in my opinion, two things: 1) crypto meltdown as $HOOD is associated with crypto and 2) the street potentially thinking that trading volumes have topped for the cycle. Let's discuss both of these things. In terms of crypto, yes...it's ugly. Robinhood make a good chunk of crypto being traded and it is very high margin. Now, prediction markets have also been strong but I don't think they can compensate for all of the crypto momentum slowing down, especially if sports tend to slow down in Q2, but it is still a positive tailwind. More broadly, what helped HOOD gain momentum back in 2023/2024 was $BTC also gaining strength. Unfortunately, the downside volatility on Bitcoin seems to be applying to HOOD as well. In terms of trading volumes drying up, I don't know if thats true...we will find out when we get more data, but the market is acting if that is true which is weird given how much volatility we have had.
- Now, it is weird to see HOOD get hit the hardest when names like COIN aren't down as hard even though they are more correlated to crypto. Multiple analysts have come out to say that this feels unjustified and unwarranted but I guess this is how the market is interpreting it.
- The other weird thing about the sell off is that high-beta stocks have had a massive move...HOOD is a high beta name and more importantly the home for all of the high beta names being traded but STILL the market does not care. It's weird. There is a disconnect but the stock has not been treated as a name that benefits from this.
- Valuation. HOOD has an aggressive multiple, part of the reason for that is because of growth, innovation, product velocity, etc. But, like many names that did amazing last year, it's almost like the street does not care. This is weird considering the street is giving random names 200 times sales multiples because they are in the right theme, but that is not happening with many favorites of last year and as a result, if the valuation normalizes and we see multiple compression, that could be the streets way of taking profits and rotating. I don't think Robinhood has given any reason to, but that may be the issue here.
- I believe this company is generational and is building out multiple elements to the business that aren't contingent on just trading volumes, however, the street may disagree. If they see it only as a crypto trading app then if crypto volumes go down, HOOD goes down. Vlad is building a company for the next 20 years and I know how hard he and the team works to put out incredible products, it's just the effect of those products being outside of trading volumes may not be what the street is seeing in the short term (again very weird because thats not what the issue was just 2 months ago) but in the long term that will continue to make HOOD a generational compounding machine.
Maybe earnings will change sentiment but as of now it is confusing why the stock is getting hit so hard. Bought a little bit of the dip but if crypto keeps going down, it might take HOOD down with it. Earnings should be very strong, just a very weird way for the street to interpret what's happening with HOOD this year.
