Robinhood Markets Inc.’s HOOD revenue fell 6.10% to $299 million in the first quarter, down 43% from the same period last year and the company’s fifth straight quarterly decline.
The company trimmed its loss to $392 million from a loss of $1.4 billion in the same period last year. Its shares fell 10% in aftermarket trading on Thursday.
Robinhood HOOD 6.10% has spent big bucks to grow its business. Total operating expenses increased $690 million in the first quarter, up nearly 50% from the same period last year. Earlier this week, the company surprised markets by laying off 9% of its full-time employees, implicitly acknowledging that it was overspending.
Robinhood has attracted millions of investors during the Covid-19 pandemic. Now it’s struggling to hold her. Robinhood is a fee-free broker that relies on trading volume for revenue. It sends client orders to high-speed trading firms in exchange for cash in a controversial practice called payment for order flow.
Robinhood’s monthly active users declined 10% to 15.9 million in March, compared to 17.7 million for the same month in 2021.
When there are fewer client orders, the brokerage office earns less. Robinhood’s transaction-based revenue fell by almost half, from $420 million to $218 million.
The company faces stiff competition in the trading space from more established brokers with deep pockets. Fidelity Investments has focused on the Reddit crowd and recently introduced Bitcoin investing to 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 hyper-growth and continue to build services for clients, with the added challenge of doing so in a declining market.
Despite the losses, Mr. Warnick said the company is confident in its direction. “We’re building a really strong foundation for future growth,” he said.
Chief Product Officer Aparna Chennapragada says Robinhood’s training materials aim to be bite-sized and consumable as the company seeks to democratize commerce.
Photo: Mickey Pierre-Louis for The Wall Street Journal
The current market, characterized by rising interest rates and falling asset prices, has made investors more cautious, Mr Warnick said. They trade less and in smaller amounts, he said. “They’re certainly paying attention to the macro environment,” he said.
Robinhood’s shares are down 73% since its IPO in July 2021 and 86% from a record $70.39 set on Aug. 8 last year.
Robinhood has added a number of new products to build its user base and generate new revenue streams such as capitalizing on the crypto movement.
Earlier this month, Robinhood announced that users could trade four more cryptocurrencies – including cult favorite Shiba Inu. It announced that it will acquire UK-based crypto firm Ziglu Limited.
In response to user demand, it launched a digital wallet, a separate type of account that allows users to transfer cryptocurrencies from Robinhood’s platform. Previously, users could buy and sell but had to hold their assets in their Robinhood accounts.
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The company also added support for the Lightning Network, an independent service designed to make Bitcoin payments faster and cheaper.
The momentum in crypto is unpredictable. Prices for cryptocurrencies like bitcoin, ether, and dogecoin are down about a third from their November peak, and trading volumes on the major exchanges are down about 70% since October, according to data from research firm CryptoCompare. This fallout has been evident in Robinhood’s earnings reports.
In the second quarter of 2021, Robinhood said crypto trading accounted for a total of $233 million, more than half of its transaction revenue. However, in the most recent quarter, that number dropped to $54 million.
Robinhood has since added a few subscription-style services to help balance investments — and launched a recurring crypto investing feature in September, allowing customers to add a constant amount of money on a daily, weekly, or monthly basis.
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Last month, Robinhood extended trading hours to 7 a.m. to 8 p.m. ET and said it plans to move to 24-hour trading going forward.
It also introduced a cash card that, among other things, allows investors to link their paychecks to direct deposits and automatically invest a portion of them in each pay period.
Robinhood has also built on its marketing promise of democratizing trading and adding features that make investing more accessible to new users.
“For me, the accessibility of the design is so important because for so many people [a cellphone] is the only computing device they have,” Chief Product Officer Aparna Chennapragada said of the mobile app-based brokerage.
“Not everyone has a laptop,” she says.
The brokerage firm added a 24-hour customer service hotline in the fall, which Ms. Chennapragada was surprised to find the company not only received questions from early investors — such as how to sign up — but also questions from more experienced investors.
The company’s training materials focus on bite-sized, consumable information that isn’t meant to be intimidating or loaded with jargon, she said.
Write to Paul Vigna at [email protected] and Jenna Telesca at [email protected]
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