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Trading app Robinhood reported some major wins in its first earnings report since going public but the stock slid after offering a stark guidance warning.

Robinhood earnings

Robinhood headline stats

Robinhood revenues soared 131% year-on-year in the second quarter for a total of $546 million. The “app that seeks to democratise finance” was buoyed by a robust surge in cryptocurrency trading.

Transaction-based revenues totalled $451m, of which $233m – or over half – came from crypto trades. Cryptocurrency’s share of Robinhood revenues reached 51% in Q2 – soaring way above the 17% generated in the first quarter.

For comparison, digital currency trading revenues in Q2 2020 were just $5m. Now, more than 60% of Robinhood accounts are trading tokens.

Interestingly, it wasn’t Bitcoin or Ether that was the most traded token amongst HOOD users. Instead, the most popular traded crypto on the app was Elon Musk and internet favourite Dogecoin. The token accounted for 34% of all crypto trading transactions on the Robinhood app.

If you think about it, this sort of makes sense. Cryptocurrencies are a preferred asset of a new generation of traders; many of whom got involved in trading during the peak pandemic lockdown. They’re young and heavily swayed by opinions from non-traditional sources, such as Reddit.

Dogecoin is a bit of a meme, starting as a joke token, but has since gained massive popularity – not least due to the influence of perennial Doge champion Elon Musk.

The app also made incredible ground in some other assets. Options trading, for example, reached $165m in transaction-based revenues. A further $52m was sourced from equities trading. Robinhood also nets revenues from gold, although these are very small compared to its other market segments.

Robinhood’s assets under custody accelerated to $102bn – annualised growth of 202%. In Q2 2020, that figure was closer to $32bn.

The number of total funded accounts, i.e., those tied to a bank account, increased 151% year-on-year to reach 22.5m users. Robinhood recorded 18 million in Q1.

So, revenues are up. Assets under custody ballooned. The number of app users has increased too. All things considered, this first public quarterly earnings report should be a cause for celebration for Robinhood investors and traders surely?

Robinhood share price falls as app warns of slower Q3 trading

Robinhood tanked about 10% in after-hours trading after the report. It made gains last night on Wednesday but was once more in the red to the tune of 9% pre-market on Thursday.

The fairly major drop came after the app issued guidance for the rest of the year.

“For the three months ended September 30, 2021, we expect seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts than in the prior quarter,” the company said in the earnings release.

Cryptocurrency exchange Coinbase gave a similar outlook in its Q2 earnings release earlier this month.

The app reported a second quarter net loss of $502m. It was profitable at this time last year. Even so, Robinhood said this was within the expected loss range of $487-537m.

Like Coinbase, Robinhood’s performance is now intrinsically linked to cryptocurrency price action. Dogecoin, Bitcoin and Ether are all subject to the major volatility that affects all crypto tokens.

“If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected,” the app said.

The key here is sustaining user loyalty. Many Robinhood users view their accounts in a similar way to sports-betting apps. When professional sport was called off worldwide due to the pandemic, many such users turned to stock markets and crypto trading for the perceived similarities it holds with gambling on sports matches.

Additionally, many Robinhood users feel the app is best used as a springboard. Once they’ve gained familiarity and a level of comfort with trading and investing, they then move onto other, more established institutions to raise their trades.

It will be interesting to see HOOD’s direction once the US economy opens up. Can it sustain activity from a new breed of users?

We did see a 4 million jump in the level of funded accounts in Q2, so perhaps it’s doable. But when the app is pegged so closely to crypto price movements, it may not be unfair to suggest that we’ll see some Robinhood share price volatility going forward.

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