The $127 Billion Robinhood Illusion
Robinhood Markets, Inc. (HOOD) is a major player in the Financial Services sector. The company's current share price is $143.25 , giving it a market capitalization of $127,238 million. The market assigns high valuation multiples to the stock, including a current P/E ratio of 71.2x and an EV/EBITDA multiple of 85.8x.
This analysis uses a detailed Discounted Cash Flow (DCF) model to determine if this market valuation is justified by the company's underlying financial projections. The results suggest a significant overvaluation.
The Core Valuation
A DCF model projects a company's future cash flows and discounts them to their present value. This model uses several key assumptions to forecast Robinhood's performance over the next five years.
Key Model Assumptions:
5-Year Revenue CAGR: 18.3%
WACC (Discount Rate): 14.88%
Terminal Growth Rate: 2.0%
Based on these inputs, the DCF analysis produces a negative implied share price of -$47.52. This represents a potential downside of -133.2% from the current price.
A negative valuation implies that the present value of the company's projected unlevered free cash flows, combined with its terminal value, is less than its outstanding net debt. The model projects negative unlevered free cash flow for all five forecast years , reaching -$5,073 million in 2030. This is a primary driver of the model's outcome. The result leads to a clear investment recommendation: SELL.
An Alternative Perspective
Valuation models are sensitive to their inputs. We can also value Robinhood using an alternative method based on an exit EV/EBITDA multiple.
Using a projected Year 5 EBITDA of $4,707.15 million and an exit multiple of 15.0x, this approach yields a different result. The multiple-based valuation implies a share price of $14.84.
While this value is not negative, it still suggests a potential downside of -89.6% from the current market price. This alternative method reinforces the conclusion that the stock is overvalued.
Sensitivity and Final Thoughts
The sensitivity analysis confirms the model's findings. Across a range of different discount rates and terminal growth assumptions, the DCF-implied share price remains very negative. Similarly, the multiple-based valuation stays well below the current share price across a range of scenarios.
Both the primary DCF valuation and the alternative multiple-based approach indicate a major disconnect between Robinhood's current market price and its projected financial performance. The analysis points to a significant overvaluation, suggesting caution for current and potential investors.
