Robinhood (NASDAQ: HOOD) was one of the most hotly anticipated debutants into the public market this year. It successfully IPO’d in late July, but since then has had mixed fortunes. The stock-trading app offers over 5,000 stocks and seven cryptocurrencies for potential investors to trade.
Shares in the trading app dropped by 8% in after-hours trading following the devastating earning report Tuesday evening. The stock price now sits at $35.44, down 7% from its initial public offering price of $38 when it exploded onto the market in late July.
So what does mean for investors?
Robinhood’s shares tumbled following a very disappointing earnings report on Tuesday. The company massively underperformed on revenue forecasts, posting earnings of $365 million against estimates of $431.5 million. Revenue from crypto trading only came in at $51 million, down from a massive $233 million in Q2. This steep drop, while doing a great job of mirroring the typically volatile crypto space, should be worrying for investors.
In an even more worrying development, more users departed the app than opened new accounts in the last quarter. Q2 saw Robinhood explode thanks to the sudden surge of popularity in trading meme stocks and Dogecoin, but this frenzy seems to be all but finished. “Frankly, it’s gonna be impossible for us to accurately predict,” exclaimed Robinhood CFO Jason Warnick when asked about the app’s trading volume.
The company is also seeking clarity on the regulations surrounding its crypto trading offerings. Robinhood currently offers users the opportunity to trade seven different cryptocurrencies. It’s not expected to add any more until they have this regulatory clarity and, as such, could struggle to ride the next big coin as it did with Dogecoin.
All of this has led to bleak Q4 expectations, with the company expecting no more than $325 million in revenue for the holiday quarter. This is in stark contrast to the $565 million generated in Q2 of this year. Investors were expecting to see more hopeful predictions from the company, and have sold the stock in droves as a result.
So is Robinhood a good investment?
Robinhood is certainly an interesting company. Having pioneered the drive for commission-free stock trading, its forays into crypto and commodities have made it a one-stop shop for all things trading. However, the company remains inextricably tied to the fortunes of crypto. Cryptocurrencies are extremely volatile and unpredictable by nature, and simply don’t represent the values we believe make a good investment here at MyWallSt. We believe in long-term investing and in buying what you believe in.
This week’s earnings have shown just how volatile a stock like Robinhood can be. Its revenue is incredibly dependent on the hype surrounding meme-stocks and whatever the latest popular crypto coin is. Until this changes, Robinhood will remain a dangerous prospect for any long-term investors.
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Financial Writer at MyWallSt
Pádraig’s favorite stock is Nike. Growing up as a sports fanatic, seeing Nike collaborate with athletes like Jordan, Lebron, and Ronaldo inspired him and cemented the brand in his mind. Now, despite having failed miserably in his attempts to earn a fabled Nike sponsorship, he still believes in the innovation and creativity behind Nike and is convinced they will only grow stronger as the world's leading sports brand.