Summary Robinhood (HOOD) faces a 50%+ drawdown from its peak, driven by declining crypto, equities, and options volumes amid tightening liquidity. HOOD's Q4 FY25 earnings are expected to show sequential declines in transaction and net interest revenues, reflecting risk-off sentiment and macro uncertainty. Forward revenue growth is projected to slow sharply in FY26, with forward consensus growth estimates that may be lowered, leading to multiple compression and further downside risk. I am not initiating a position in HOOD, preferring to wait for clearer signs of liquidity stabilization and a bottoming in crypto sentiment. Let’s Set The Stage Robinhood (NASDAQ: HOOD ) is down over 50%+ since its peak in October 2025. Despite the magnitude of the sharp drawdown, the stock still climbed 200% last year, as it continued to make progress towards building the “super app,” a single interface that integrates a customer’s banking and brokerage with a blockchain-first architecture to democratize finance for all. However, the sharp decline in the stock price since October can be primarily attributed to the cryptocurrency downturn, which in turn has impacted the company’s transaction volume across crypto, equities, and options, thus signaling declining platform engagement amid growing macroeconomic uncertainty. Robinhood is slated to report its Q4 FY25 earnings on 02/10, and while we can expect a slowdown in both its Transaction and net-interest revenues, the next leg of the stock will be dependent on the direction of liquidity moving forward. Assessing The State of Liquidity Since October 2025, it seems that we are increasingly hearing the word “liquidity,” which is often blamed as the culprit behind the sudden market volatility and especially the decimation of certain parts of the AI trade. But now may be a good time to just pause for a bit and get on the same page as to what the word “liquidity” truly means. To that, I will borrow the explanation from Beth Kindig’s post, where she quite accurately described it as follows : “Liquidity refers to the availability of capital in the system—specifically, how easily businesses, consumers, and financial institutions can obtain cash or credit. But when it comes to actually positioning a portfolio through different liquidity regimes, how this impacts risk-on assets often gets lost in translation. In modern markets, liquidity is inseparable from debt dynamics. It is not the creation of new debt that dominates capital flows, but the ability to roll over existing obligations. In fact, three out of every four global financial transactions are related to debt refinancing, not expansion. Moreover, nearly 80% of global lending now requires collateral, typically in the form of high-quality, low-volatility assets like U.S. Treasuries. This creates a framework where liquidity—and by extension, risk appetite—is dictated by how cheaply and easily borrowers can refinance without overextending their own balance sheets. The more capital that’s freed through this process, the more capital can rotate into risk-on assets such as Bitcoin.” To that, there are a few factors that influence the directions of liquidity conditions that include 1) Monetary Policy, 2) Fiscal Policy, 3) The Treasury General Account and 4) Federal REPO Operations. So, let’s throw some light on what is causing the liquidity crunch at the moment based on the above factors. Source: Lyn Alden's newsletter, Domestic Liquidity Indicator Starting with monetary policy, the nomination of Kevin Warsh as the new Fed Chair has ignited fears of a more hawkish policy, where markets are now expecting higher-for-longer interest rates (fewer cuts) and a smaller balance sheet. In Wall Street language, this essentially removed the so-called “Fed put,” which investors have relied on for years, leading to an exodus from risk assets. Meanwhile, the Treasury General Account has been rising to above-normal levels in the past two weeks, a move that effectively removes liquidity from the broader financial system as the government builds its cash reserves. Finally, the reverse repo balances, where excess cash is parked, have collapsed, as can be seen below, which is forcing capital out of risk assets, particularly out of crypto and the AI trade lately. Generally, in these scenarios, we would often see a flight to safety such as Gold ( GLD ), but in this case, given the potential hawkish stance of the incoming Fed regime, we have seen investors take shelter in the US Dollar ( DXY ), which has been climbing higher since February. Expect A Slowdown In Robinhood’s Revenue and Earnings Growth When Robinhood reported its Q3 FY25 earnings last year, total revenue grew 100% YoY, with Transaction-based, Net Interest and Other revenues growing 129%, 66%, and 100% YoY, respectively. Note that, Transaction-based and Net Interest revenues contribute close to 93% of Total Revenues, with the former driving 57% of Total Revenue, and the latter at 36%. Q3 FY25 Earnings Slides: Revenue breakdown by segments When it comes to its Transaction based Revenue, Crypto and Options are the primary contributors of the revenue bucket at over 78% contribution, with each growing at 339% and 50%, respectively. Q3 FY25 Earnings Slides: Breakdown of Transaction-based revenue In fact, one of the primary drivers of the company’s stock performance last year could be attributed to the exploding contribution from Crypto, which surged from less than 10% of revenue to over 21% in one year, with both trading volume and market share rising robustly on a YoY basis, as can be seen below. Q3 FY25 Earnings Slides: Surging Trading Volume Meanwhile, when it comes to its Net Interest Revenue, the segment has also been experiencing a robust gain over the last two quarters, driven by its platform assets surging 119% YoY to $333B, along with record-high margin lending, where Robinhood’s margin book is up 150% YoY to $16.5B, and the growing adoption of its Robinhood Gold subscription, which has penetrated 14.5% (up from 9.0% in Q3 FY24) of its total funded customers. Q3 FY25 Earnings Slides: Growing adoption of Robinhood Gold However, all of that is about to change, as we not only enter a period of tougher comps but also a volatile, risk-off environment driven by monetary policy uncertainty and a tightening of liquidity conditions. In fact, if we look at the monthly numbers instead of the quarterly, we can already see that transaction volumes (across equity, options, and crypto) started falling in November, while the total number of funded customers and total platform assets also declined sequentially. Source: Robinhood's Monthly Metrics, Slowdown in Transaction volume in November While markets did stage a rally from November into January, while margin debt reached a record high, crypto has continued to struggle in this period of time. In the meantime, with the latest round of market volatility since February, I believe both transaction-based and net interest revenues will decline sequentially and won’t likely improve until we see an inflection in liquidity conditions and overall investor sentiment. This is already reflected in the forward consensus estimates , where revenue is expected to slow down in FY26 to 22.23%, down from a projected 53% YoY growth rate in FY25. SA: Forward revenue growth estimates by consensus The same is true for earnings per share, which are also expected to slow down based on consensus estimates below. SA: Forward earnings per share growth is expected to slow down But is it all priced in? With a 50%+ drawdown from its peak, the question is whether the slowdown (per consensus estimates) is fully priced in. That will depend on where liquidity is headed next. Starting with the market fear of a potential hawkish Fed, Lyn Alden made a very good point , where she argues that Warsh's recent statements around the deflationary force associated with the AI-driven productivity gains should set the stage for an easier than expected monetary policy. What is also important to note is that Warsh would likely be able to meaningfully shrink the balance sheet according to Lyn, especially with the current standing where banks are near the low levels of their ample reserve range, which has already prompted the Fed to shift towards balance sheet growth. Plus, with the latest news on layoffs in January being at the highest level since 2009, this could quickly turn into a deflationary recession-like environment, which would further dampen platform engagement on Robinhood, while trading volumes, particularly in crypto, will collapse along with the deepening crypto winter. While this would trigger interest-rate cuts (and potentially QE) from the Fed, marking a bottoming in liquidity drainage, the path is not straightforward, which means that sentiment, particularly in crypto, can continue to weaken. In these environments, traditional valuation methods no longer work, as sentiment-led selloffs are never rational. Speaking of valuation, the stock has seen its forward price-to-earnings ratio compress from 66 in June last year to now trading at 31. Taking the projected FY26 earnings per share into account, which are expected to grow 21% next year, the forward PE ratio compresses to 29. This is compared to a forward ratio of 18.8 for Coinbase (COIN), which is expected to see its earnings per share decline 18% YoY in FY25. Meanwhile, incumbents like Interactive Brokers (NASDAQ: IBKR ) and Charles Schwab (NYSE: SCHW ) are trading at forward PE ratios of 28 and 17, respectively, with earnings per share projected to grow at 12% and 20%, respectively. Taking the midpoint of both Interactive Brokers and Charles Schwab PE ratios into account, we arrive at 22.5, which is still 22% lower than Robinhood’s forward FY26 PE ratio, which means the stock price can go down as low as $55.44 per share before bottoming out. My final verdict and conclusions I strongly believe that Robinhood’s price action will follow the overall sentiment of crypto, which is ultimately determined by liquidity conditions. At the moment, it is hard to predict the timing of when we might see a bottoming in the liquidity tightening, which may in turn also affect consensus estimates to slash their forward revenue and earnings growth estimates for the stock. Ultimately, an investor’s action to “buy,” “hold,” or “trim” a stock is determined by whether or not they own the stock, their portfolio allocation size, average cost basis, and long-term outlook. In this case, as an individual with no existing Robinhood shares, I will not be initiating a position at current levels and will wait for better clarity on liquidity and crypto to signal a bottoming in process.
