In recent months, Robinhood Markets has experienced a remarkable surge, seeing its stock price multiply tenfold since the end of 2021. Investors have eagerly piled into the mobile trading platform as it expands its financial services, with prices climbing from under $10 a share to nearly $150, marking significant profits for long-term shareholders in a strong bull market.
However, some analysts caution that Robinhood’s current valuation might be inflated. As odd as it may seem given Robinhood’s success, there are two companies poised for stronger growth and potentially greater valuations in the next decade.
SoFi Technologies: A Rising Banking Giant
SoFi Technologies, with a market capitalization of $34 billion, is emerging as a formidable competitor to Robinhood. In the past quarter, SoFi reported a customer base of 11.7 million, demonstrating a robust growth rate of 51% annually since 2021. In contrast, Robinhood’s customer count has stagnated at 26.5 million funded accounts during the same timeframe.
SoFi’s rapid ascent in the online banking sector allows it to capture market share from traditional financial institutions, thanks to its appeal among younger consumers. While both SoFi and Robinhood position themselves as disruptors in their respective fields of consumer banking and stock brokerage, SoFi benefits from the larger scope of the banking industry.
With major banks like Bank of America boasting market caps around $369 billion, there is a significant opportunity for SoFi to expand further and potentially surpass Robinhood’s valuation in the coming years.
Interactive Brokers: A Competitor on the Rise
Another key player to watch is Interactive Brokers, which boasts a market capitalization of approximately $123 billion. As a direct competitor to Robinhood, it is also gaining ground among professional investors and advanced traders. Interactive Brokers saw its active accounts swell from just over 1 million in 2021 to 4.1 million this past September, demonstrating faster customer growth compared to Robinhood.
Moreover, Interactive Brokers holds customer equity totaling $665 billion, significantly higher than Robinhood’s $304 billion in platform assets. This suggests that while Robinhood has a vast number of retail clients, Interactive Brokers is attracting larger, more committed, and profitable investors.
In terms of financial metrics, Interactive Brokers presents a more attractive valuation, with a price-to-earnings (P/E) ratio of 38 compared to Robinhood’s lofty 77. This discrepancy, coupled with its accelerating customer growth, positions Interactive Brokers as a potential long-term winner over Robinhood.
In summary, while Robinhood has drawn attention and generated wealth for investors recently, its slow customer growth and elevated valuation might indicate that alternative investments such as SoFi Technologies and Interactive Brokers could yield better prospects over the next decade.
