Robinhood Markets, Inc.HOODNASDAQ

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DCF Valuation

⚠️Model Warnings

•Perpetuity method produces negative equity value (debt exceeds enterprise value). This suggests distress or model limitations.

DCF Valuation Summary

Strong Sell

Fair Value: $8.19 per share(market-calibrated)

-89.3%

Upside to Fair Value

Current

$76.27

Pure Model

$-14.51

Fair Value

$8.19

Bull Case

$-14.07

Bear Case

$-14.78

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

Unreachable

Calibrated Growth

75/25 blend

Market price implies assumptions beyond model range. Fair value blends 75% model / 25% market price.

What's Driving This Ratingfor HOOD

✓

CapEx already efficient

CapEx at 0.85% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is -21.42% — below the sector mature average of 46.81%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $859M (11.81% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 23.23% in Year 1 to -6.00% by Year 5 (per analyst consensus). That's below the 2.50% terminal rate, so growth re-accelerates in Years 6-10 — a generous assumption. This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

⚠

Market price exceeds model's maximum

Even with the most optimistic terminal growth the model allows, it can't reach $76.27. The market is pricing in factors beyond the DCF framework — possibly optionality, brand premium, or expectations of margin/growth inflection not yet in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 82.23% indicates efficient cash generation. FCF reaches $792M by Year 10 (10.89% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)2.44

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)15.48%

Cost of Debt

Pre-tax Cost of Debt0.12%

Tax Rate10.67%

After-tax Cost of Debt0.11%

Equity Weight (E/V)81.48%

Debt Weight (D/V)18.52%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (81.48% × 15.48%) + (18.52% × 0.11%)

= 12.63%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$5.5B	$7.7B	$7.6B	$7.1B	$7.3B
EBIT	-$1.2B	-$1.6B	-$1.6B	-$258M	$859M
Tax	-$126M	-$176M	-$174M	-$28M	$92M
NOPAT	-$1.1B	-$1.5B	-$1.5B	-$230M	$767M
+ Depreciation	$79M	$110M	$109M	$102M	$104M
- Capex	$47M	$65M	$65M	$60M	$62M
- Δ NWC	$104M	$120M	-$49M	-$19M	$18M
Free Cash Flow	-$1.1B	-$1.5B	-$1.4B	-$170M	$792M
Discount Factor	0.888	0.700	0.552	0.435	0.304
Present Value	-$1.0B	-$1.1B	-$753M	-$74M	$241M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$792M

Terminal Growth Rate2.50%

WACC12.63%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$8.0B

PV of Terminal Value$2.4B

Exit Multiple Method

Year 10 EBITDA$963M

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$11.6B

PV of Terminal Value$3.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs-$4.7B

PV of Terminal Value$2.4B

Enterprise Value-$2.3B

(-) Net Debt$11.1B

Equity Value-$13.4B

Shares Outstanding889M

Price per Share$-15.12

Exit Multiple Method

PV of Projected FCFs-$4.7B

PV of Terminal Value$3.5B

Enterprise Value-$1.2B

(-) Net Debt$11.1B

Equity Value-$12.4B

Shares Outstanding889M

Price per Share$-13.90

Pure Model Fair Value

$-14.51

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
10.63%	$-13.93	$-13.81	$-13.69	$-13.54	$-13.38
11.63%	$-14.33	$-14.24	$-14.15	$-14.04	$-13.93
12.63%	$-14.64	$-14.58	$-14.51	$-14.43	$-14.34
13.63%	$-14.89	$-14.84	$-14.79	$-14.73	$-14.66
14.63%	$-15.09	$-15.05	$-15.01	$-14.96	$-14.91

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$-14.78

-119.4% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 3.00

Base Case

$-14.51

-119.0% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 2.44

Bull Case

$-14.07

-118.5% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 2.07

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth23.23%

Year 3 Revenue Growth18.53%

Year 5 Revenue Growth-6.00%

Year 7 Revenue Growth-2.60%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin-21.42%

Terminal EBIT Margin46.81%

Tax Rate10.67%

Historical Capex / Rev0.85%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 12x EV/EBITDA (Financial Services sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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