Robinhood (HOOD) stock has been on a downtrend since its IPO in July of last year. The financial services company, which aims to “democratize finance for all,” also recently produced a lackluster earnings report for Q1 2022.
Amid Robinhood’s financial woes, finance YouTube channel host and retail trader Matt Kohrs believes the outlook is bleak for the company’s stock.
“At least from the retail trading community, which I’m happily a member of, I don’t really think the sentiment has changed, I mean, it’s a dumpster fire of a situation,” Kohrs told Yahoo Finance Live. “I mean, in 2021, they managed to throw $3.7 billion into a pit, douse it in gasoline, and light it on fire. And it seems like they’re not really changing course, as we’re kicking off 2022.”
Kohrs joined Yahoo Finance Live to discuss quarterly earnings for Robinhood and why retail traders are leaving the platform. The company posted a larger-than-expected loss for the quarter ended March 31, as total net revenues decreased 43% year over year to $299 million. The first quarter of 2022 marked the fifth consecutive quarterly drop in revenue for Robinhood, with the total net loss coming in at $392 million, or $0.45 per diluted share.
Monthly active users also fell 10% year over year — a major hit to Robinhood’s payment for order flow (PFOF) business model, of which the online brokerage has received criticism in the past for. Berkshire Hathaway (BRK-A, BRK-B) Vice Chairman Charlie Munger, an outspoken critic of the PFOF model, likened Robinhood’s financial reckoning to “God enacting justice.”
“I think there’s definitely a jump now,” Kohrs said. “People are ditching Robinhood for other commission-free brokerages. But I think there’s two major ways to look at this. If we look at classic fundamental analysis of what’s happening, their monthly active users in the quarter over quarter dropping by about 1.4 million, and on top of that, it’s worse because they’re also getting less money per user — the revenue’s dropping.”
Kohrs noted that Robinhood’s perception by the retail trading community is central to its usership and, consequently, how its stock performs. And right now, he said, retail traders view the platform to be “a little bit closer to the Sheriff of Nottingham” — the unjust tyrant in the tale of Robin Hood — rather than the titular hero himself.
“There’s definitely been an exodus from Robinhood,” he said. “One of the ones that I know is becoming very popular is Public. It’s another commission-free brokerage. But the difference is there’s no payment for order flow. As there’s retail traders learning more and more about what’s going on in terms of market structure … they’re happy paying a commission, understanding that [they’re] paying for transparency, or they’re going to ones that just don’t engage in payment for order flow at all.”
Robinhood and cryptocurrency
Even in terms of its cryptocurrency exchange offerings, Robinhood may be falling behind the competition. The company reported in its latest earnings report that its cryptocurrency transaction revenues decreased 39% year over year to $54 million, compared to $88 million in the first quarter of 2021.
And although Robinhood Crypto added the ability to buy and sell popular cryptocurrencies like Shiba Inu (SHIB-USD), Solana (SOL-USD), Compound (COMP1-USD), and Polygon (MATIC-USD) in mid-April, Kohrs believes it may be too little, too late.
“So even if they’re attempting to rebrand and really focus on crypto, it seems like it’s going a little bit too slow in that their burn rate right now, like I said, [was] $3.7 billion last year,” he said. “They already burned another $300-plus billion this first quarter. And really, the sentiment of it, I just don’t see many people. In terms of equities, options, and crypto, I think there’s different brokerages and exchanges that are more trusted than Robinhood.”
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV