Short selling

Why Is Robinhood’s Share Price Falling Following Earnings?

Robinhood, the controversial, commission-free trading platform that rose to infamy this year, unveiled a mixed first quarterly report.

Love them or hate them, Robinhood (NASDAQ: HOOD) has changed the face of investing forever, introducing millions of retail investors to this world of ours. 

And now, it has to answer to those same investors after providing its first-ever quarterly earnings report. 

How did Robinhood do? 

By all traditional metrics, Robinhood had a pretty good quarter:

  • Revenue jumped 131% year-over-year (YoY) to $565 million.
  • Assets under custody (the amount of customers’ money in accounts) ballooned 205% to $102 billion in Q2.
  • Its net loss of $502 million, or $2.16 per share, was well within estimates. 
  • Total funded accounts jumped to 22.5 million from 18 million in Q1.

Unfortunately for Robinhood, these results don’t stand up to the problems it faces, the first one being that crypto trading revenue totaled $233 million, or 51% of all of Robinhood’s revenue — up from 17% in Q1. To have more than half of all generated revenue tied up in such a volatile trend could be devastating for Robinhood should interest wane. 

That brings us to Robinhood’s second problem, as outlined by the company last night:

“For the three months ended September 30, 2021, we expect seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts than in the prior quarter.”

This ties in with previous bear cases against the company that a decline in trading interest could cause financial results to be adversely affected. 

As far as inaugural earnings reports go, this one was a bit concerning. A lot seems to ride on maintaining high levels of interest in cryptocurrency, which is possible, but as history has proven so far, this interest usually slacks off at some point, meaning the company needs to find other avenues to keep users interested.

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