HOOD is not owned; rated B due to expectation of future sell-off creating better entry point.

Why was Nike even on your watch list, guys? Well, first of all, we thought looking at the companies that we put up here today, there has to be at least one or two companies that go lower on the end and or lower on the spectrum, not necessarily targeting S tier.

So, we thought, you know, why not why not talk about Nike also because, you know, it's one of those companies that for a very brief moment in time, we actually owned. Um so, I think it's we didn't revisit it at any point after that.

So, um I think it did make sense to just uh quickly quickly bring it up here.

Um all right. Any company that looks at you immediately? I'm kind of interested in Robin Hood. Um it's a company that you pitched um was it last year or this year? I have a lot to say. I have a lot to say about Robin Hood.

Let's do it. I think he also sent me Yeah, here we are. Valuation chart and then some key metrics. Do you maybe want to start with the key metrics and just a a brief breakdown of Robin Hood?

I feel like especially in the value space. Um there might be um I wouldn't say a lack of understanding of Robin Hood, but maybe it's not the most common stock for value investors to pitch.

Yeah. Yeah. I I think um this is one of those where you have to set aside any uh preconceived uh notions you have about the company and and try to look at it as objectively as possible because the Robin Hood that exists today um is truly a very very different company than the Robin Hood that most people think of when they think of the the GameStop 2021 meme tra you know trading kind of moment.

Uh and that that's not to say that there's not huge retail volume on Robin Hood still uh and that like Wall Street Bets doesn't still like that the popularity of day trading is sort of a important part of their business for now.

Uh but when we're looking at the key metrics here, uh these are uh really showing how they're they're dramatically changing their positioning. Uh, and so what really stood out to me is that Robin Hood, uh, now I think is targeting Gen Z, uh, clearly, um, and I think they're playing a very, very long game of where, um, they want to be the all-in-one financial app for the next generation.

Um, and and people have accused them of gamifying and all this stuff, but really like the app, the, you know, it's very intuitive the way it's laid out. it re, you know, it all the way they communicate, it all resonates very well with with the younger demographic.

And of course, uh, you know, without getting too much into it, Robin Hood talks a lot about this great wealth transfer that's about to occur. Um, you know, boomers, the baby boomer generation controls the majority of wealth in society, and they're aging into their 60s and 70s.

Uh and so over the next decade, you're going to see a lot of that wealth get passed on to to basically Gen Z um people who are who are our age. Uh so we're sort of the the target target demographic.

Um and Robin Hood has has recognized this massive generational uh wealth transfer.

Um and like I said, they're trying to position them themselves as being something different than just a day trading company. U they want to be a wealth manager. Uh my home loan is through Robin Hood.

Uh they have a they have a you know Robin Hood Gold subscription business. Um and it's sort of like the Amazon Prime membership of personal finance. Uh and I was able to get the current market rate.

I'm going to brag a little bit, Daniel. The current market

Um and so now I have an incredibly incredible bias of like favorable bias toward Robin Hood because one they got me this incredible they got me this incredible mortgage rate because I'm a Robin Hood Gold member.

Um and then just recently I got the credit card and so uh now it's 3% cash back on on everything. you know, like a lot of credit cards do these rotating categories of like you get 5% for this for a quarter, whatever it is.

Um, the Robin Hood is rolling out this credit card that's 3% on everything. Um, by far the uh I would say the best value kind of all-purpose credit card you can have like you know if you have a specific travel credit card or something you obviously it's better for certain situations in terms of just daytoday you know it's an incredible card. It's by far it's my new favorite one to use.

So, the point being Robin Hood, you know, I I used to look at it as this like very juvenile place to invest. Um, and increasingly, uh, I've got my home loan with Robin Hood. I've got my credit card with Robin Hood.

I've actually moved my IAS to Robin Hood uh because they do um they do a match feature which is uh uh pretty which is no other brokerage that I'm aware of offers a match on IAS, right?

We're all well acquainted with 401k matches for employers, but normally when you're contributing to an IRA, it's just your contributions. Robin Hood has sort of found a loophole around that where um they can match your contributions and I think it's it's like a I think it's a 1% match if you're not a gold member and a 3% match maybe if you are a gold gold member. Um and they count it as interest income.

So basically, uh, yeah, you get an extra, >> the way it works out basically is you get an extra $200 a year >> from the interest income if you max out your contributions in your IRA.

And and look, it that's not a huge amount of money, but an extra $200 a year compounding, you know, tax advantage, depending on whether you have traditional or Roth. Um, I mean, both different different types of tax advantages over decades.

That's a tremendous amount. Again, it's like tremendous amount of of wealth creation.

And so I I'm hugely biased because I think the products that Robin Hood is producing are are incredible. And you're seeing this in, you know, all of a sudden people like me are moving their IAS to Robin Hood.

So their total assets under C custody is ballooning. Uh the number of gold subscribers is ballooning. Um and then be as they bring in more assets, as they bring in more gold subscribers, um the average revenue per user is is uh is spiking upward, which is probably um the most promising metric of u they're they're getting more assets, they're getting more subscribers, and they're monetizing each person uh significantly significantly more.

Um so I I find Robin Hood a tremendously difficult company to value. Um there's just there's a lot going on. Um there's banking, there's there's trading, brokerage, uh now kind of wealth management, um subscription business.

Like there's a lot going on with Robin Hood. So I have very low conviction in like any given moment saying Robin Hood is, you know, undervalued.

But long-term, I do really like what they're doing with like this strategy of I think they're just they're putting out products that are objectively better than what anyone else on the market is doing.

Sort of like how they revolutionized uh free trading and nobody else is doing that. Now they're moving to a number of other categories uh and revolutionizing those categories

and um yeah I wouldn't be surprised that if Robin Hood becomes sort of um in this I I you know in the way that Schwab and Fidelity are the uh the brokerage brokerages and wealth managers of our parents generation.

I would not be surprised if Robin Hood becomes that for Gen Z and Gen Alpha. Um, and and if that's the case, then um I think there's a lot of room there's a lot of room for uh for Robin Hood to to run.

And obviously, you know, they get wrapped up in some stuff that I I you know, some weird like some of the prediction market stuff is weird and the crypto stuff like that's the stuff that I would bring up. It's like >> I ignore that. I ignore that.

>> Yeah. But I feel like what's the average consu uh consumer experience? I mean, for example, here we also have just got a comment where it's like people personally move out their IRS, for example, out of Robin Hood because they know, okay, well, it's just tempting if it sits in Robin Hood and there's so much that you can easily do with all that money that it's suddenly gone.

Um, I mean, I can't download the app obviously because I'm not in states, but um I sort of asked myself like are you the average user or are you the outlier? And all the offerings that you can make use of, is it because other monies or other people lose their money on one day trading options?

Um that's sort of where I'm like it certainly all looks good but like the bigger vision of if you want to be a company that actually gets huge amounts of money in the future because people like us when we are 40 or 50 or even just in our mid-30s actually go to Robin Hood and place our money there.

Will they be a company where I would like to do that? Um it's just difficult for me to say but I don't know. I feel it's um it's a weird mix as you said. It's difficult to understand. like they do stuff where you just look at it and you're like, it's clearly the best product out there.

Um, and it just makes sense rationally to move your money there, for example, or get the credit card. And then I'm like, how exactly do they finance that? And what's the shift of people moving their money out of Robin Hood because they feel like it's just too much of a gambling side to some extent and then people who say who look a good investors have a lot of money and say, I actually move my money into Robin Hood because I feel like the products that they offer for long-term investing um are just significantly better.

And for me, it's just difficult to say. I wouldn't say that I have an opinion um on that.

Generally, what I hear a lot of people say is that they move their money out of Robin Hood as long or whenever they start making a lot of money because they do feel like the ease of just acting there.

Um buying stocks, selling stocks, using options um especially the betting markets by now. Um I I saw a chart unfortunately I have don't have it today. um they basically showed like how many people um use betting, online betting now compared to investing for like their their long-term um financial financial planning and it's just shocking and I think it wouldn't exist if you don't have apps like Robin Hood.

And I don't know if it's the same with Robin Hood where like people like you use it in a way that is like just financially very smart but most people don't um or how exactly that's that's going.

Maybe you can just talk about the valuation a bit um before before we rank it because obviously you have to pay the price for the phenomenal metrics um that we just saw.

>> Yeah, I um I think the big Yeah, you touched on the big question for Robin Hood is can they change kind of their can they rebrand a little bit? Can they change their perception where people see it as um a reliable way, reliable location to store their wealth?

Um in in theory there there's no difference. I mean you know you could they make it easier to trade, right? But it's not like uh you know they still have the same uh deposit and securities protection and you know there's regulated just in the way same way that Schwab and Fidelity are.

So, it's not like it's not like you're taking any risk by being on the Robin Hood platform. The only risk is maybe a behavioral risk that you might be tempted to to put money into some of these other things.

Um, and you know, >> I I think it is, but I I also think like among our audience of value investors, that would be something people are very mindful of and would say, okay, I need to move my money to a different platform.

Um, I guess my question is for the median, you know, person, uh, you know, put putting sa saving money and and and setting things aside and accumulating wealth and inheriting wealth.

Um, do they is that a turnoff for them? And I I'm not sure that it is.

Uh, another thing that they do is they offer um they offer uh like it's like a match on um I forget how much it is. It might be 1%. Um, yeah, it might be 1%. It might be more um of of basically if you bring in another account.

So, if you let's say you inherit money and you have an account in Schwab and then you move it to Robin Hood, I think they'll do a 1% match. I I need to fact check this. Um, but that that's not that's no joke, right?

That overcomes >> Yeah. You're like you're like >> you a lot of money.

>> Yeah. Yeah, it's like it's kind of annoying to to m to go from one platform to the other. Uh but getting a 1%, you know, if you're moving a million 10,000, that's a $10,000 payout, right?

Just to just to move your account. Um so they're very savvy. They're very savvy uh in trying to address that.

And so um 40 times operating profit. Uh you asked about the valuation. Uh I wouldn't say it's >> obviously cheap. Um, you know, I would say last year it was pretty clearly overvalued. Uh, it was really a bargain in early 2024.

Um, I don't own any Robin Hood stock. Uh, I I'm probably I know that with these financial companies, uh, you know, Robin Hood is so closely tied to the the sentiment in markets. um they're almost like a leveraged uh kind of a kind of a leveraged uh beta on on the market or like uh the meme stock frenzy.

So there will eventually be a sell-off on the other side of this AI bubble even if it's you know even if the AI is all justified and all that stuff like there will be a correction and then I think Robin Hood will clearly be disproportionately impacted and that will create a real buying opportunity.

But in terms of like how close I am, how willing I am to to add Robin Hood to the portfolio, I would put it I would put it B actually. I don't I don't know if that's take for you.

>> I don't I mean I have the feeling that whenever I don't understand a company very well, I just wouldn't want my opinion to blind, for example, your judgment because I know how well you understand the company.

You looked at it both from like an analyst perspective and you're a power user. So, I'm like, uh, I think at that point it just makes sense. Um, and also I'm surprised to be honest.

Um, I think 40 times earnings, I know I shouldn't say that as a value investor, it doesn't sound that expensive. Like if you look at the growth, if you look at um the potential future, it it's not a price where we would, you know, want to buy it immediately, which is why it is in B and not an A tier.

Um, but I thought it would be more expensive um to be honest. And as you said, probably a good argument for why you should wait is just that it is a high better bet on the market to some extent.

And as soon as you get a downturn, most likely you will also able um be able to buy Robin Hood at a much cheaper price than um than today.

All right. So, it's the highest rated stock right now out of MS, LVMH, and Nike. Um which is which is quite telling. >> Yeah, to some to some extent, but I also know how much you love the business, so I can't say I'm hugely surprised. >> I I I do love it as a customer for sure.

Um, so I'm happy with B. I I feel like I probably have a bias just um as we talked about with you and Robin Hood where I just feel like I get enough from the app to feel it's a huge value ad to many people.

Robin Hood is like really grandiose and like one of those that I could imagine taking like a small position in and they might be able to do do something incredible, but it's not I don't think right now is obviously the right moment to to bet on it.