Robinhood Has Just Unlocked a Huge Growth Opportunity
Key Points
- It has begun offering tokenized shares of publicly traded companies to customers in Europe.
- Those European users can also now buy tokenized shares of privately held companies.
- 10 stocks we like better than Robinhood Markets ›
Robinhood Markets' (NASDAQ: HOOD) stock-trading and investing platform has grown in popularity with retail investors in recent years. The company, which simplified trading with its app and offered its users the ability to buy and sell stocks and other assets with no commission fees, had more than 25 million funded accounts on its platform in 2024 versus just 10 million five years ago.
But Robinhood isn't content with the status quo, and it's always looking for ways to expand and generate more growth. Its latest move: offering tokenized shares of public companies -- and even private ones. And that could prove to be a huge growth catalyst.
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Tokenized shares: a risky move or a genius idea?
Tokenized shares of companies open up a new way for Robinhood to cater to crypto investors. Users have for years been able to buy and sell cryptocurrencies through the platform, but now users in Europe can also gain exposure to popular U.S. stocks via the blockchain. (Tokenized shares are not yet available in the U.S. due to "accredited investor" regulations, which set limits on who can buy various types of complex and higher-risk investments.)
These tokenized shares aren't actual shares. Instead, the company explains, "you are buying tokenized contracts that follow their price, recorded on a blockchain." Through this process, users will be able to buy and sell tokens at any time during the week (Monday through Friday), and with just a foreign exchange fee of 0.1%, costs will be minimal. The move could result in much more trading activity on Robinhood's platform, especially in Europe.
What's even more intriguing is that Robinhood is also offering tokenized shares of private companies, including OpenAI and SpaceX. This is a bit controversial, however, given that these companies are not publicly traded, and thus, it's unclear how their prices could be tracked on the blockchain. For example, OpenAI has made it clear that these tokens are not equity in the company, and stated: "We did not partner with Robinhood, were not involved in this, and do not endorse it."
It's a move still full of questions for Robinhood, but one that I think can pay off.
Why this can be a big win for Robinhood
For Robinhood, this could be a great way to appeal to a broader range of customers and generate more revenue. And while offering tokenized shares of private companies may be controversial, it can potentially give investors a unique way to track their (estimated) values and benefit from their long-term success and growth.
Robinhood CEO Vlad Tenev say that while tokens in a company such as OpenAI aren't really equity, that shouldn't derail their potential. "What's important is that retail customers have an opportunity to get exposure to this asset." While it's still unclear how the value will be determined and how often it will be updated, if investors believe tokenized shares can provide them with a way to benefit from OpenAI's growth, offering them could drastically increasing trading on Robinhood's platform.
Tokenization may also be on the horizon in the U.S., as Securities and Exchange Commission Chairman Paul Atkins has said that "tokenization is an innovation." Atkins has been more favorable to crypto than his predecessor, Gary Gensler. While this doesn't mean that tokenized shares will be broadly available to investors in the U.S. in the near future, it's a sign that there could be more opportunities in the crypto space beyond buying and selling digital currencies.
That could mean more business for Robinhood down the road. The company has grown from $1.8 billion in revenue in 2021 to just under $3 billion this past year. It's now also profitable, and it may only be a matter of time before it gets added to the S&P 500 index.
Should you invest in Robinhood stock today?
In just the past 12 months, shares of Robinhood are up more than 310%. Despite that upward move, it could still be a good stock to invest in if you're bullish on crypto. And given its popularity with retail investors, it's a solid way to invest in the market's long-term growth.
The one downside is that, trading at more than 50 times earnings, this fintech stock isn't a cheap buy. But if you're willing to hang on for the long haul, you could still potentially earn a good return from buying the stock right now.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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