Robinhood Reports 43% Revenue Decline

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

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Robinhood has spent heavily to expand its business. Its total operating expenses in the first quarter were $690 million up, nearly a 50% increase from the same period last year. Earlier this week, the company surprised markets by laying off 9% of its full-time staff, implicitly acknowledging that its expenses were too high.

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Robinhood signed up millions of investors during the Covid-19 pandemic. Now it is struggling to hold on to them. 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.

Robinhood’s monthly active user count fell 10% to 15.9 million in March, from 17.7 million in the same month of 2021.

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When there are fewer customer orders, the brokerage makes less. Robinhood’s transaction-based revenues fell by almost half to $218 million from $420 million.

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.

Chief Financial Officer Jason Warnick said Robinhood is trying to both exit a period of hypergrowth while still building out services for customers with the added challenge of doing that during a down market.

Despite the losses, Mr. Warnick said the company is confident about its direction. “We’re building a really strong foundation for future growth,” he said.

The current market, marked by rising interest rates and falling asset prices, has made investors more cautious, Mr. Warnick said. They are trading less and in smaller amounts, he said. “They’re certainly paying attention to the macro environment,” he said.

Robinhood’s shares have fallen 73% since its July 2021 initial public offering, and 86% from its record of $70.39 set on Aug. 8 last year.

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

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

Responding to user demand, it launched a digital wallet, a separate kind 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 such as bitcoin, ether and dogecoin are down about one-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 of 2021, Robinhood said crypto trading totaled $233 million, more than half its transaction revenue. However, in the latest quarter that figure fell to $54 million.

Robinhood has since added some subscription-type services in an effort to level out investments—launching a recurring crypto investment feature in September enabling customers to 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 ET, 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 them each pay period, among other features.

Robinhood also has 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 [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,” she said.

The brokerage added a 24-hour customer service line in the fall, where Ms. Chennapragada was surprised to see the company not just receive early-investor questions—like how to log in—but questions 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.

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


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