Robinhood Earnings Loom After Stock Tumble, Layoffs

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The brokerage has been adding a range of new products to build up its user base

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A zero-fee brokerage, Robinhood relies on trading volume for revenue. It sends customer orders to high-speed trading firms in exchange for cash in a controversial practice called “payment for order flow.” When there are fewer customer orders, the brokerage makes less.

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Robinhood’s shares have fallen 73% since its July 2021 initial public offering and 86% from its all-time high of $70.39 on Aug. 8.

Robinhood reports its first-quarter earnings Thursday after the market closes. Analysts expect the company to post a loss of 38 cents a share for the first quarter, according to data compiled by FactSet,

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While that would be up significantly from $1.70 a share it lost a year ago, it would also be Robinhood’s fifth consecutive quarterly loss and 11th over the past 13 quarters.

The company faces tough competition in the trading space from more established brokerages with deep pockets. Fidelity Investments has focused on the Reddit crowd and recently launched bitcoin investing in 401(k)s. Asset-management giant Vanguard Group bought Just Invest last summer to offer personalized portfolios.

Robinhood has been adding a range of new products to build up its user base and bring in new revenue streams, including by capitalizing on the crypto movement.

Earlier this month, Robinhood announced users could trade four more cryptocurrencies—including the cult favorite Shiba Inu. It also announced that it was acquiring UK-based crypto firm Ziglu Limited.

Responding to user demand, it launched a digital wallet, a separate type of account that would allow users to transfer cryptocurrencies off Robinhood’s platform. Previously, users could buy and sell but had to hold their assets within their Robinhood accounts.

The company also added support for the Lightning Network, an independent service designed to make bitcoin payments faster and cheaper.

Momentum in crypto is unpredictable. Prices for cryptocurrencies like bitcoin, ether and dogecoin are down about a third from their November peak, and trading volume at the largest exchanges is down about 70% since October, according to data from research firm CryptoCompare. That fallout has shown up in Robinhood’s earnings reports.

In the second quarter, Robinhood said crypto trading totaled $233 million, more than half its transaction revenue. However, that figure fell to $51 million in the third quarter and $48 million in the fourth.

The company has since added some subscription-type services in an effort to level out investments. It launched a recurring crypto-investment feature in September with which customers can add a consistent amount of money on a daily, weekly or monthly schedule.

Last month, Robinhood extended trading hours to 7 am to 8 pm Eastern Time, saying it was looking to move to round-the-clock trading in the future. It also launched a cash card that allows investors to link their paycheck direct deposits and automatically invest a portion of it each pay period, among other features.

Robinhood has also been leaning into its marketing promise of democratizing trading, adding features that make investing more approachable to new users.

“For me, the accessibility of the design matters so much because for so many people this [a cellphone] is the only computing device that they have,” Chief Product Officer Aparna Chennapragada said of the mobile app-based brokerage. “Not everyone has a laptop.”

The brokerage added a 24-hour customer service line in the fall, where Ms. Chennapragada was surprised to see the company not receive just early-investor questions—like how to log in—but queries from more sophisticated investors. The company’s education materials are focused on bite-sized, consumable information intended to not be intimidating or full of jargon, she said.

Robinhood has spent heavily to expand its business. Its total expenses in 2021 were $5.5 billion, up from $945 million in 2020. In 2021, it reported a net loss of $3.7 billion.

Earlier this week, the company surprised markets by laying off 9% of its full-time staff, implicitly acknowledging that its expenses were too high.

Write to Paul Vigna at [email protected] and Jenna Telesca at [email protected]


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