We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
How Will Fed Rate Cuts Reshape Robinhood's Revenue Model?
Read MoreHide Full Article
Key Takeaways
Lower rates could cut Robinhood's net interest revenue by $40M per quarter.
Trading volumes in stocks, options and crypto may rise as investors shift from bonds.
Bitstamp acquisition, tokenized assets and Gold subscriptions diversify revenues.
The Federal Reserve’s rate-cut cycle presents both challenges and opportunities for Robinhood Markets (HOOD - Free Report) . While lower interest rates will weigh on net interest revenues (NIR), rising retail trading activity and new revenue streams are expected to provide important offsets.
Robinhood’s interest-sensitive earnings have surged recently. The company reported a record $647 million (a 20% increase year over year) in NIR for the first half of 2025, driven by high client cash balances and margin loans. However, every 25-basis-point (bp) cut could trim roughly $40 million in quarterly revenue, as sweep yields and margin rates fall. With the Fed poised to continue easing into 2026, this headwind could intensify, limiting growth from interest income.
At the same time, falling rates typically steer investors away from bonds and toward equities and riskier assets, driving up trading volumes in stocks, options and crypto. For HOOD, where transaction-based revenues remain core, this shift could partially or even fully counterbalance lost NIR. About 59% of the company’s total revenues in the first half of 2025 came from transaction-based activities.
Business diversification further supports Robinhood’s top-line prospects. The company’s push into crypto via its Bitstamp acquisition, rollout of tokenized assets and international expansion broadens its customer and revenue base. Meanwhile, recurring subscription revenues from Robinhood Gold, which offers premium yields and trading tools, continue to scale and provide a more stable earnings stream.
Therefore, Robinhood’s ability to pivot toward a balanced mix of trading, subscriptions and global fintech services will determine how it thrives in a lower-rate environment.
How HOOD’s Peers are Likely to Fare as Fed Lowers Rates?
Similar to HOOD, lower interest rates will reduce net interest income (NII) for both Interactive Brokers and Schwab, directly impacting their largest revenue streams. At the end of the second quarter of 2025, Interactive Brokers’ management stated that every 25-bp Fed rate cut will reduce annual NII by $73 million.
Meanwhile, Schwab is more sensitive to rate changes as NII accounts for more than 50% its total revenues. Management expects net interest margin expansion as high-cost funding is reduced, but continued rate cuts will compress NII and margins.
Hence, NII will decline for Interactive Brokers and Schwab as rates drop, but their diversification into commission, advisory and transactional revenue streams is likely to help moderate the impact.
Over the past year, shares of HOOD have skyrocketed a whopping 419.9%. In the same time frame, the industry has surged 50.9%.
Image Source: Zacks Investment Research
Given the impressive price performance, HOOD shares are currently trading at a massive premium to the industry. The company has a 12-month trailing price-to-tangible book (P/TB) of 14.77X compared with the industry average of 3.06X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Robinhood’s 2025 and 2026 earnings implies year-over-year growth of 47.7% and 18.2%, respectively. In the past week, earnings estimates for 2025 and 2026 have been revised upward to $1.61 and $1.90, respectively.
Image: Bigstock
How Will Fed Rate Cuts Reshape Robinhood's Revenue Model?
Key Takeaways
The Federal Reserve’s rate-cut cycle presents both challenges and opportunities for Robinhood Markets (HOOD - Free Report) . While lower interest rates will weigh on net interest revenues (NIR), rising retail trading activity and new revenue streams are expected to provide important offsets.
Robinhood’s interest-sensitive earnings have surged recently. The company reported a record $647 million (a 20% increase year over year) in NIR for the first half of 2025, driven by high client cash balances and margin loans. However, every 25-basis-point (bp) cut could trim roughly $40 million in quarterly revenue, as sweep yields and margin rates fall. With the Fed poised to continue easing into 2026, this headwind could intensify, limiting growth from interest income.
At the same time, falling rates typically steer investors away from bonds and toward equities and riskier assets, driving up trading volumes in stocks, options and crypto. For HOOD, where transaction-based revenues remain core, this shift could partially or even fully counterbalance lost NIR. About 59% of the company’s total revenues in the first half of 2025 came from transaction-based activities.
Business diversification further supports Robinhood’s top-line prospects. The company’s push into crypto via its Bitstamp acquisition, rollout of tokenized assets and international expansion broadens its customer and revenue base. Meanwhile, recurring subscription revenues from Robinhood Gold, which offers premium yields and trading tools, continue to scale and provide a more stable earnings stream.
Therefore, Robinhood’s ability to pivot toward a balanced mix of trading, subscriptions and global fintech services will determine how it thrives in a lower-rate environment.
How HOOD’s Peers are Likely to Fare as Fed Lowers Rates?
Two of Robinhood’s close peers are Interactive Brokers (IBKR - Free Report) and Charles Schwab (SCHW - Free Report) .
Similar to HOOD, lower interest rates will reduce net interest income (NII) for both Interactive Brokers and Schwab, directly impacting their largest revenue streams. At the end of the second quarter of 2025, Interactive Brokers’ management stated that every 25-bp Fed rate cut will reduce annual NII by $73 million.
Meanwhile, Schwab is more sensitive to rate changes as NII accounts for more than 50% its total revenues. Management expects net interest margin expansion as high-cost funding is reduced, but continued rate cuts will compress NII and margins.
Hence, NII will decline for Interactive Brokers and Schwab as rates drop, but their diversification into commission, advisory and transactional revenue streams is likely to help moderate the impact.
Robinhood’s Price Performance, Valuation & Estimate Analysis
Over the past year, shares of HOOD have skyrocketed a whopping 419.9%. In the same time frame, the industry has surged 50.9%.
Image Source: Zacks Investment Research
Given the impressive price performance, HOOD shares are currently trading at a massive premium to the industry. The company has a 12-month trailing price-to-tangible book (P/TB) of 14.77X compared with the industry average of 3.06X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Robinhood’s 2025 and 2026 earnings implies year-over-year growth of 47.7% and 18.2%, respectively. In the past week, earnings estimates for 2025 and 2026 have been revised upward to $1.61 and $1.90, respectively.
Image Source: Zacks Investment Research
HOOD currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.