Mizuho analyst Dan Dolev reiterated a Buy rating on Robinhood Markets, Inc
The analyst estimated that HOOD's recent implementation of a 3-cent pass-through charge (disclosed in fiscal third quarter 2023 10-Q) per option trading contract could potentially boost 2024 adjusted EBITDA by 5% or more.
The analyst questioned if the consensus reflected the pass-through charge. Evidence suggests it is unlikely.
Since before the Menlo Park, California-based company reported earnings on Nov. 7, adjusted EBITDA estimates for fiscal 2024 have declined from over $660 million to $560 million.
Dolev notes the market has likely not fully considered the impact of the pass-through of these regulatory fees, since brokerage and transaction expenses have not wholly adjusted.
The analyst said that while it may seem small ($30 million - $35 million), it is essential given HOOD's high operating leverage.
He added that these costs are within 10% of total variable costs. This update could lead to higher incremental margins as revenues grow over time.
The FY24 adjusted EBITDA estimates have declined by ~$100 million since just before third-quarter reporting, which bodes well for potential upward revisions as the expense line in question has hardly adjusted.
Dolev noted that the combination of solid execution, adoption of new products, expansion into the UK, and potential profit uplift due to high operating leverage could continue HOOD's strong momentum into 2024. The analyst raised his fiscal 2024 adjusted EBITDA estimates on cost execution to $562 million from $533 million.
Dolev projected fourth-quarter revenue and EBITDA of $484 million and $117 million.
The stock gained over 13% last year.
Price Action: HOOD shares traded lower by 0.09% at $10.98 on the last check Tuesday.
