Cryptocurrency Trading Crisis Drops Robinhood’s Revenue
Robinhood has shown signs that its once-thriving crowd of retail investors is cooling down to online brokerage, reporting that its user growth has leveled off and cryptocurrency trading has stagnated in the last quarter.
Although analysts predicted a slowdown in transaction volumes, the sharp drop in crypto transactions was unexpectedly severe, with transaction income from the volatile asset class falling 78% from $ 233 million. in the second quarter to $ 51 million in the third.
According to FactSet data, the decline in crypto trading has lowered Robinhood’s overall income per user by 42%, helping to push its shares down by up to 10% in after-hours trading. Transaction revenues fell 41%, from $ 451 million in the second quarter to $ 267 million in the third.
Vlad Tenev, CEO and co-founder of Robinhood, said the company used the quarter to develop new products such as crypto wallets that could serve as a basis for future growth. “We believe Robinhood is emerging as the most reliable and intuitive platform for retail and crypto investors,” Tenev said.
Robinhood went public in July in an offer presented as part of the Memes Equity Revolution that is democratizing finance by bringing millions of new retail investors into public markets and cryptocurrencies.
The group estimated that half of all new brokerage accounts opened from 2016 to 2021 were on its platform, and half of its own 22.4 million funded accounts opened since 2015 were first-time investors. Monday night’s drop in Robinhood shares took them below their IPO price of $ 38.
Monthly active users on the platform increased from 21.3 million to 18.9 million in the last quarter. The brokerage firm said the decline in crypto activity has also resulted in “considerably fewer” new accounts, as well as a drop in the total number of funded accounts on the platform.
Funded accounts grew from $ 22.5 million to $ 22.4 million and new customers opened only 660,000 accounts, compared to $ 5 million in the second quarter. The broker also warned that headwinds will likely persist in the fourth quarter.
Although the summer months have traditionally been slower for retail brokers, Robinhood’s results have underperformed more traditional players such as Charles Schwab, according to Devin Ryan, director of financial technology research at JPMorgan.
Brokerages like Schwab “are still seeing strong engagement metrics such as net new asset growth, which remains very healthy,” Ryan said.
Robinhood added crypto “wallets” to the platform earlier this month, a move that puts it in direct competition with more established digital currency sites such as Coinbase.
Despite the downturn, Robinhood has grown rapidly over the past year. Revenues from cryptocurrency transactions were still up over 800% from the same quarter last year.
“The company had set the tone for the quarter pretty well with second quarter results,” Ryan said. “The question is: are we returning to a more normal level of activity after an arguably unsustainable first half? “