Robinhood shares rise after company announces $1 billion buyback

Robinhood shares are trading higher in US premarket price action today after the company announced a $1 billion share buyback which is its first ever repurchase authorization as a publicly traded company.

“As our business and cash flow have continued to grow, we’re excited to announce a $1 billion share repurchase program to return value to shareholders,” said Robinhood’s CFO Jason Warnick.

Robinhood shares rise after it announced a share buyback

The company intends to begin the share buybacks from Q3 and expects to execute it over a two-to-three-year period “depending on general business and market conditions, and alternative investment opportunities.” According to Robinhood, “Management also plans to vary the pace of capital deployment depending on share price.”

Notably, $1 billion is a sizeable buyback for Robinhood whose market cap is just around $18 billion.

HOOD repurchased shares in 2023 also

While the current buyback plan is officially the first one for Robinhood, last year the company repurchased $600 million worth of its shares that were held by Sam Bankman-Fried. Robinhood held $5 billion on its balance sheet at the end of Q1 and questions over capital allocation did pop up during the earnings call.

Responding to the question, Warnick said, it has three ways to use the capital for the benefit of shareholders. He said, “One is just investing in our business for organic growth, and you’re seeing us do that with the incremental investments for growth, including the $100 million step-up in marketing this year. The second is M&A. You’ve seen us recently acquire X1.”

He listed returning cash to shareholders as the third priority and referred to the $600 million buyback that it completed last year.

HOOD shares have soared over the last year

Robinhood was among the most widely awaited IPOs of 2021 but the listing failed to live up to the expectations. The company priced at IPO at $38, which was at the lower end of the range. The shares fell below the IPO price on the listing day. While the popular trading app reserved a third of shares for retail investors, it did not find much love with Reddit traders initially.

It however subsequently became a meme stock as the company benefited from higher trading volumes in meme shares as well as meme cryptocurrencies, namely dogecoin.

HOOD shares have since pared gains and haven’t returned to the IPO prices. However, the shares rallied over the last year and are up 130% with roughly half of the gains coming in 2024.

Robinhood reported record earnings

In Q1 2024, Robinhood reported revenues of $618 million which was a record for the company and ahead of the $549 million that analysts expected. Cryptocurrencies accounted for $126 million of the company’s revenues in the quarter, thanks to the renewed interest in digital assets. Robinhood posted an EPS of 18 cents which was thrice of what analysts expected.

SEC serves a Wells notice to Robinhood

Meanwhile, Robinhood’s cryptocurrency business faces regulatory troubles and earlier this month it revealed that the SEC served it a Wells notice. In its response, Robinhood said that it was “disappointed” with the SEC’s decision. It added, “We firmly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to make clear just how weak any case against Robinhood Crypto would be on both the facts and the law.”

Analysts on HOOD shares

Wall Street analysts are bullish on HOOD shares amid the revival in trading volumes. Earlier this month, Bank of America double upgraded the shares from an “underperform” to “buy” while raising the target price by $10 to 424.

“Retail engagement peaked in 2021 and then declined significantly through the >500bps of Fed rate hikes and the 2022 bear market, troughing in 2023,” said Bank of America analyst Craig Siegenthaler in a note.

He added, “However, following the emergence of a new bull market last year, we have monitored a rebound in multiple metrics at Robinhood Markets … and we expect this to continue through 2026.”

Providing the rationale for his upgrade, Siegenthaler said, “We view the current macroeconomic setup as almost the complete opposite of 2021 which was when we initiated [research coverage] on HOOD at Underperform.”

He added, “Now interest rates are elevated and the BofA economists forecast Fed rate cuts to start in December while economic growth is surprising to the upside and stock/crypto markets are back in bull market territory.”

Meme stock trade is back

Notably, the meme stock trade is back and names like GameStop have soared. Also, interest rates in the US are expected to come down even as the timing remains uncertain amid still-high inflation.

JMP Securities also maintained its “overweight” rating on HOOD shares amid the meme stock mania. “Flash forward to today, Robinhood still represents the closest proxy in the public markets for retail trading activity, and retail trading activity is experiencing a surge in recent days as ‘meme investing’ moves back to the mainstream,” it said in a note.