Retail brokerage Robinhood’s revenue fell more than expected in the first quarter as the pandemic-era retail trading fervour in meme stocks and cryptocurrencies lost steam in the wake of market uncertainty.
Revenues dropped 43 per cent from a year ago to $299mn in the first quarter of 2022, shy of Wall Street estimates for $356mn, according to analysts polled by Refinitiv and below its own guidance.
The results come as retail brokerages that experienced a coronavirus pandemic-driven boom are reporting a pullback from retail investors compared to 2021 figures. Uncertain markets, rising interest rates, lack of fiscal stimulus, return to pre-lockdown routines and inflation, which is squeezing households’ bottom lines, have contributed to investor reticence about investing.
Robinhood shares fell 11 per cent in after-hours trading.
“We’re seeing our customers affected by the macroeconomic environment, which is reflected in our results this quarter,” said Jason Warnick, chief financial officer.
The broker that helped to popularise zero-commission stock trading with investors during the pandemic has struggled since its hotly anticipated IPO last summer. It has shed nearly 75 per cent of its value since its debut.
Earlier in the week Robinhood reported that it was laying off approximately 9 per cent of its total staff. The broker’s share price dropped to a record low, $9.38, following the announcement.
“When equities go up and money is easy, everything is great for brokerages,” said Dan Dolev, an analyst and managing director at Mizuho Securities. “But as soon as you’re in a bear market, people shy away, they close accounts.”
Robinhood grew rapidly over the past year, adding 10m funded accounts to its platform in 2021 and doubling in size, with more than half of new sign-ups from first-time investors. But it has struggled to maintain this growth, and has been slow to add additional products to its customer offerings, analysts said.
Robinhood’s main source of revenue, a controversial practice of selling customer trades known as payment for order flow, took a big hit in the first quarter. The company’s revenues from payment for order flow for the quarter fell 48 per cent from the year prior to $218mn, and slowed from the previous quarter, when it made $264mn in transaction-based revenue.
The drop was led by a steep decline in revenue from equities trading, which fell 73 per cent from the same quarter last year, to $36mn, and slid from $52mn in the previous quarter. Cryptocurrency transaction revenue dropped 39 per cent to $54mn in the first quarter.
In a call following earnings the brokerage said retail customers have been more cautious given the complex economic environment, and customers with smaller balances have been trading less. The brokerage said it remains “focused on monetisation” of its customers, especially from its more advanced traders.
Average revenue per user dropped 62 per cent to $53 in the first quarter of 2022, compared to the same period in 2021. But monthly average users have remained high for the broker, falling just 10 per cent from the highs of the first quarter of 2021.
The company reported a net loss of $392mn or 45 cents a share, compared with net loss of $1.4bn, or $6.26 a share in the year-ago quarter.
The broker is pinning expansion hopes to its crypto business, and last week Robinhood agreed to buy UK crypto company Ziglu as part of this effort to focus beyond share trading, as well as make a second attempt at cracking the British market after a cancelled launch in 2020. The broker finished rolling out its crypto wallet feature to US customers this week.
Dolev noted that “Robinhood is just lapping the Covid extravaganza trading boom, they’re one year on from their toughest [comparison] ever.”
Read More: Robinhood revenues tumble as retail trading loses steam