Robinhood Markets, Inc. (HOOD)

The methods disagree: one places the value today above the price ($104) and the other below.

Today — expensive, no margin of safety: at $104 trades ~100.5% above its value discounted to today (~$52); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$32.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($104) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (16.7%/year) than we project (19.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$4.5 bn of owner earnings in year 5 (vs ~$5 bn of our base case). It recalculates if the DCF assumptions are edited.

A bank is valued on equity (P/E × common earnings + price/tangible book), not EV: deposits and debt are funding. It returns capital via dividend + buyback —the buyback reduces the share count, so earnings per share grow faster than aggregate earnings—. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

TTM pretax income (US$2,415M) includes non-recurring items: a US$129M gain from the deconsolidation of Robinhood Ventures Fund I in the second quarter of 2026 and US$23M in restructuring charges from the same quarter. Year 0 is normalized by subtracting the gain and adding back the charge (a net adjustment of -US$107M), leaving normalized net income attributable to common of US$1.98 billion as the starting point, instead of the US$2.072 billion reported. The TTM capex figure carried by the XBRL corresponds to a tag abandoned since September 2023 (us-gaap:PaymentsToAcquireProductiveAssets); it was reconstructed by levels from the filing's own statement of cash flows: FY2025 capex (US$54M, the sum of property/software purchases of US$15M and internally capitalized software of US$39M) plus the first half of 2026 (US$42M) minus the first half of 2025 (US$29M) = US$67M of TTM capex, all treated as maintenance because it falls below depreciation and amortization (US$91M) and the business is not in a physical-capital investment mode. Stock-based compensation (7.1% of revenue, 145.6% of reported free cash flow) is already expensed when net income is used as the P/E base, so it requires no additional adjustment. The second-quarter 2026 earnings release (8-K, Jul 29, 2026) does not give revenue or earnings-per-share guidance for 2026 — only a range for adjusted operating expenses and stock-based compensation of US$2,675-2,775 million — so the growth path anchors on the reported revenue trajectory (FY23 +37.3%, FY24 +58.2%, FY25 +51.6%, TTM +38.3%) rather than on company guidance. The share-count path is modeled flat (912 million across the three scenarios): the diluted count grew net from stock-based compensation issuance from 2022 through 2025 (878.6M to 918.8M) and only stabilized in recent quarters because buybacks accelerated, partly funded with proceeds from the June 2026 convertible notes issuance (US$2,200M) — a debt-funded buyback is not extrapolated as a sustainable net reduction (§6), so the conservative assumption is that the buyback merely offsets dilution from stock-based compensation, without reducing the count. No dividend is modeled: the company does not pay one.

Today's multiple compresses on its own going forward as the metric per share grows (accelerated by the buyback, which reduces the share count). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $65 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $104, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $65 in 5 years and a required return of 4.5% annually, the maximum to pay today is $52. Against the current market price ($104), the margin of safety is -100.5% (trades above the maximum → a premium is paid) and the total return at that price would be -9.1% annually.

• Today's implied multiple. The market price implies an earnings multiple well above the 10x-14x band of the investment-brokerage archetype, even on normalized earnings.
• Coverage of price by the favorable scenario. Not even the favorable scenario, with sustained high-teens growth over five years and the multiple at the top of the band, covers today's price.
• Sensitivity to the terminal multiple. One point of terminal multiple moves the five-year value by roughly 8%, so the verdict is sensitive to where it lands within the archetype's band.
• Margin of safety. No margin of safety: the price already discounts a demanding scenario.

• Return on tangible capital. 23.8% on average tangible capital, well above the 10% bar; an exceptional rating under the method's absolute bands.
• Stock-based compensation. 7.1% of revenue but 145.6% of reported free cash flow; already expensed when valuing on net income, so it does not distort the P/E multiple.
• Quality of TTM earnings. TTM pretax income includes a non-recurring gain of US$129 million from the deconsolidation of Robinhood Ventures Fund I, normalized in the year-0 path.
• Cash generation. TTM operating cash flow (US$245 million) sits well below net income due to the volatility of customer-funded balances, not a structural weakness in the business.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Robinhood does not report operating segments by business line in the traditional sense: it presents its financial results by revenue type (transactional, net interest, other) and its key indicators by customer and platform metrics. The indicators chosen — funded customers, total platform assets, ARPU, and Gold subscribers — are the ones the company itself highlights in its earnings release as the highest-signal measures of business growth. Only two annual data points (2024 and 2025) are available for each in the format the company discloses; a third, intermediate point is not fabricated.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Revenue deceleration. Revenue growth went from +58.2% (FY2024) to +51.6% (FY2025) and +38.3% (TTM), a natural deceleration from an ever-larger base.
• No company guidance. The second-quarter 2026 earnings release gives only a range for adjusted operating expenses for 2026, with no revenue or earnings-per-share guidance.
• Reinvestment runway. International expansion, event contracts, and new banking and wealth-management products give a still-long reinvestment runway.
• Gold subscription growth. Robinhood Gold subscribers grew 58% year over year in 2025, the clearest engine of the improvement in average revenue per user.

• Customer and asset growth. 27.0 million funded customers and US$322,100 million in platform assets, both growing at high-teens rates in 2025.
• Revenue diversification. Net interest revenue (34% of the total) and the Gold subscription reduce, but do not eliminate, the historical dependence on payment for order flow.
• Concentration in options and crypto. 77% of 2025 transactional revenue comes from options and cryptocurrencies, two of the products most sensitive to market volatility.
• Self-clearing infrastructure. Proprietary clearing across equities, ETFs, and options gives internal control over settlement, a regulatory and operational barrier that is costly to replicate.
• Cross-sell and ARPU. Average revenue per user rose 40% year over year in 2025, a sign that the customer base is adopting more than one platform product.

• ✓Capital adequacy (CET1)CET1 16.8% (+6.2pp above the minimum)
• ✓Reserve coverage (allowance / loan book)9.33% of the loan book
• ✕Credit quality (net charge-off rate)1.70% annually
• ✓Value creation (ROTCE − 10% bar)+14pp
• ✓Funding (deposit base)Deposits $18.7 bn

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

ⓘ Has a loan book: credit health (delinquency, coverage, normalized CECL, RoA/RoE) is evaluated separately, not with corporate solvency.

• Brokers' net capital. The regulated subsidiaries (RHS, RHD) showed net capital excesses of US$3,159 million and US$170 million above the required minimum at year-end 2025, well above the minimum.
• Margin credit risk. Customer margin is fully collateralized by securities, with minimal expected-loss risk except in extreme, sudden market declines.
• Credit card portfolio. US$1,040 million at year-end 2025, with a 9.33% provision on the balance and 1.54% of the portfolio more than 90 days past due.
• New convertible debt. The US$2,200 million convertible notes issuance in June 2026 partly funded share buybacks, raising the company's leverage materially for the first time.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Traditional capex is minimal (US$67 million in the TTM) because the business runs on cloud infrastructure and software, not physical assets. The bulk of capital is split between share buybacks (US$871 million in the TTM, partly funded with proceeds from the June 2026 convertible notes issuance) and acquisitions to add products — Bitstamp for European Union crypto, TradePMR for wealth management, WonderFi for Canada. The company pays no dividend.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Founder alignment. The founders keep skin in the game through Class B shares, though their share of the economic capital by count is low relative to their voting power.
• Multiple-vote structure. Class B shares carrying ten votes each concentrate control in the founders beyond what their economic ownership would justify.
• CFO transition. The second-quarter 2026 earnings release mentions stock-based compensation modifications tied to a change in chief financial officer, an event to monitor.
• Frequent M&A. Frequent acquisitions (Bitstamp, TradePMR, WonderFi) to add products, without yet a long enough track record to judge the return on those investments.

• Extrapolation of recent growth: revenue grew 51.6% in 2025, and the market appears to be pricing in that pace well beyond the five years this model covers, without the deceleration valuation discipline requires.
• Scarcity of pure public exposure to a young consumer financial platform: few publicly traded companies combine brokerage, crypto, and banking under a single brand aimed at a younger audience than traditional brokers.
• Retail enthusiasm and momentum: Robinhood's customer base is itself an active-trading community, and the stock trades with a disproportionate share of that base's participation, which can sustain elevated multiples beyond what normalized earnings suggest.

Today's price does not reflect a cheap company: it reflects a market paying for the continuation of exceptional growth well beyond the five-year horizon this model covers. Multiple discipline anchors the business in the band of an investment-brokerage archetype (10x-14x on normalized earnings) given the operating leverage and regulatory dependence on payment for order flow; the market, by contrast, appears to be paying a multiple more typical of a high-growth technology platform, without the discount for cyclicality and regulatory risk that a financial-intermediation business warrants. None of the three reasons above is an identifiable source of missing buyers or motivated sellers in Marks's sense: they are, rather, the explanation for why the market sustains a price today that valuation discipline does not validate over five years.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -22%/year (-70% total): the margin of safety protects the downside. The bull (-2%/year, -9% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Payment-for-order-flow regulation. The SEC's 2024 rules on minimum price increments and access fees phase in through November 2026 and will compress transactional revenue.
• Interest-rate sensitivity. A third of revenue depends on the interest-rate level on customer and corporate cash, and has already fallen in the past with lower rates.
• Cryptocurrency regulation. The classification of digital assets as securities remains unresolved in the United States, with specific risk around crypto staking services and Stock Tokens in the European Union.
• Litigation and regulatory scrutiny. Ongoing New York Attorney General investigation into execution quality, in addition to the prior 2020 SEC settlement.
• Concentration in speculative trading. 77% of 2025 transactional revenue comes from options and cryptocurrencies, both sensitive to volatility and retail speculative appetite.

Each thinker's analytical framework applied to our data.

• Buffett / GrahamQuality + margin of safety

  A narrow moat and ROTCE 24% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter LynchGrowth at a reasonable price (GARP)

  A fast grower growing 19% at a PEG of 2.5 → expensive for its growth.

• Joel GreenblattCheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard MarksPerception vs reality + cycle

  The price discounts 17% vs our 19%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth KlarmanCapital protection (bear scenario)

  Bear-scenario floor -22%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat DorseyMoat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, efficient scale, switching costs → partially passes the Five Rules.

• Aswath DamodaranExpectations implied by the price

  Justifying the price requires discounting 17%, within what we project (19%) — the story squares with the numbers.