Cathie Wood Just Reversed Course on Robinhood — And the Numbers Hint at Why

Cathie Wood trimmed her role in Robinhood for the majority of the summer. There was a big sale in July. Another one arrived on August 26. Then, on September 4, ARK Invest reversed course and purchased 28,589 shares for its flagship ARK Innovation ETF, a day after Robinhood shares surged by about 17% in a single session. It added an additional 27,083 a few trading days later. That’s the kind of action that draws criticism, particularly from a manager who publicly discloses every trade but seldom provides an explanation.

It’s not a small position. Currently valued at approximately $633 million, ARK’s investment in Robinhood is the sixth-largest holding in the equity portfolio and accounts for almost 4% of the fund. In the third quarter of 2021, Wood initially purchased Robinhood for an average closing price of about $45 per share. After that, the stock plummeted sharply, spending a significant amount of time in the single digits. ARK then made rapid gains in 2022 and 2023 at prices well below $15. Over the course of the entire history, the average purchase price has been approximately $28. On paper, the position has returned about 320 percent, at about $120 today. That’s the kind of result that makes the initial belief seem prophetic. It also begs the question of what Wood believes lies ahead.

Although the platform built much of its reputation on cryptocurrency trading, cryptocurrency isn’t currently the most intriguing development in Robinhood’s business. Event contracts are prediction markets where users exchange yes-or-no results related to economic data, elections, and other binary events.

Event contracts brought in $156 million in revenue in the second quarter, more than ten times as much as the same period last year and more than the $100 million Robinhood made from cryptocurrency trading, which actually decreased by 38%. Customers were trading 4.7 billion event contracts in August, which is fifteen times more than they did in the same month last year. Although volumes have somewhat decreased since June’s peak, a product operating at fifteen times its level from the previous year is not in danger. It’s a product that, after a quick ascent, finds its floor.

Beneath the headline figures, there’s also a more subdued activity taking place. At the end of August, Robinhood’s total platform assets were $384 billion, a 26% increase over the previous year. Over the previous 12 months, net deposits increased by roughly $74 billion—money that came in regardless of market activity. The number of funded customers increased by about 1.9 million over the previous year to 28.6 million.

Additionally, margin balances, which show consumers taking out loans against their portfolios to increase their investments, reached $21.5 billion, a 72 percent increase from the previous year. It’s worth pausing to consider that final figure. On the platform, users are doing more than just parking money. They are increasing their involvement in a way that generates revenue for Robinhood in both stable and prosperous markets.

A brokerage that began as an app for meme stock traders and has discreetly developed a more robust financial platform underneath may be what Wood sees here that the larger market hasn’t fully priced in yet. Prediction markets, Gold and Platinum subscription products, and margin lending are not characteristics of a business that is still reliant on viral trading moments. The stock at about 39 times projected 2027 earnings already assumes several more years of strong execution, and it is genuinely unclear whether the company can maintain this level of growth. By all standards, that is not a cheap valuation.

Observing ARK’s trading history in Robinhood, which spans five years of buying, selling, trimming, and doubling back, gives the impression that this is more about a long-running thesis that consistently finds new reasons to hold than it is about any one quarter’s data. In this position, Wood has endured tremendous volatility and paper losses. Even if the timing is changed along the way, the fact that she is still adding suggests the conviction hasn’t changed much, even after a summer of selling and a 17 percent single-day pop.