Robinhood (NASDAQ:HOOD) stock has kept falling without any indication of it bottoming out, and it has recently dipped even more with Gary Gensler’s stock trading proposal. The company’s finances aren’t doing great either, as Robinhood has missed its earnings expectations this quarter, leaving an even more bearish outlook for the stock.
Robinhood is clearly struggling, and things could get worse for the company as the market continues on its decline. There is also the risk of a recession, which would significantly reduce the number of investors interested in the market. With that in mind, HOOD stock isn’t something you’d want to buy yet.
Users Have Started to Leave Robinhood
As of Q1 2022, the company has already reported a 10% decrease in monthly active users (MAU) compared to last year. The stock market has worsened a lot more since then, and I expect a worse second quarter for Robinhood in this regard.
Another critical metric to look out for is average revenue per user (ARPU). Robinhood’s ARPU has declined by 62% year-over-year (YoY) to $53. Such a sharp decline is an indication that users have started trading far less on the platform than they used to.
Even if Robinhood manages to hold on to its users, they are unlikely to generate as much revenue, as the average person is no longer in the position to risk too much capital in a bear market. The stock market boomed in 2021 due to stimulus packages, low-interest rates and the confidence from vaccines being introduced. However, 2022 is almost the opposite, and unprofitable companies such as Robinhood could be in deep trouble.
Competitors Could Be a Big Problem for HOOD Stock
Robinhood isn’t the only stock market trading app, and its competitors could threaten its growth. Robinhood lacks features such as mutual funds, shorting stocks, futures trading or joint accounts. Competitors have started to fill those gaps, such as Webull and eToro.
For example, Webull offers more sophisticated charts and better features for experienced traders, while eToro offers unique copy trading features and better customer support.
Other smaller competitors have also started to gain popularity, such as Stack, which allows teens to learn and legally invest in cryptocurrencies and digital assets under the supervision of their parents who serve as custodians; that isn’t possible with Robinhood, even if their parents allow them to invest. This has led some minors to invest illegally, violate terms of service and risk having their assets frozen or seized.
Poor Financials Are Bad for HOOD Stock Investors
Robinhood is likely far from being profitable again. The latest quarter saw Robinhood’s revenue decline by 43% YoY while its net income remained negative.
In the current bear market, it is essential for investors to stick to solid companies with stable profits. Unfortunately, Robinhood is not attractive to investors in its current state. An unprofitable company such as Robinhood will only find it more difficult to keep afloat as interest rates rise and stocks decline.
In addition, HOOD stock has shown no signs of bottoming out either; the stock has declined 58% year-to-date. Even then, I believe it is still overvalued with its $6.2 billion market capitalization, and investors should continue to avoid it.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.