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Robinhood Shares Plunge After A Decline In Crypto Trading Hits Earnings

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Shares of Robinhood plunged below its IPO price from earlier this year, a day after the company reported third-quarter earnings that substantially missed expectations because of a sharp drop in crypto trading.

Key Facts

Robinhood’s stock was down nearly 10% to just under $36 per share late Wednesday morning, sinking below its $38 initial public offering price from late July. 

The popular stock trading app reported earnings after the bell on Tuesday which came in well below Wall Street expectations: Revenue fell to $365 million from $565 million last quarter, while the company’s net loss of $2.06 per share was greater than analysts’ average expectation of a loss of $1.37 per share, as compiled by Refinitiv.

The huge earnings miss was in large part due to a sharp decline in revenue from crypto trading on Robinhood’s platform, which tumbled 78% to $51 million from the last quarter.

After a blockbuster start to the year—when a wild rally in meme stocks like GameStop and cryptocurrencies like Dogecoin helped spur massive growth for Robinhood, trading activity has settled down, the company’s earnings report showed.

Robinhood’s total number of user accounts dropped slightly to 22.4 million, while fees tied to stock and options trades also declined. 

Revenue the company earns from selling customers’ trades to Wall Street’s high-speed trading firms, known as payment for order flow, was down 41% from last quarter to $267 million.

Big Number: Nearly $500 Million.

That’s how much the combined fortune of Robinhood cofounders Vlad Tenev and Baiju Bhatt fell by 11:00 a.m. ET on Wednesday, as shares of their online brokerage plummeted. Tenev and Bhatt are now worth $2.2 billion and $2.4 billion, respectively, by Forbes’ estimates.

Crucial Quotes:

“In [the third quarter], crypto activity came off record highs, leading to fewer new funded accounts and lower revenue as expected,” CEO Vlad Tenev said after the earnings release. “Historically our growth has come in waves—the surges have come during periods of increased volatility or market events,” added Robinhood’s chief financial officer, Jason Warnick. “Going forward, we expect to continue to see the ebb and flow of our growth with market conditions, as well as product launches.”

What To Watch For:

Robinhood anticipates that many of the same factors which impacted results this quarter will continue through the end of 2021. Lower retail trading activity “may persist” and affect fourth-quarter earnings, the company warned in its press release.

Further Reading:

Despite Robinhood’s Rocky IPO, Each Cofounder Is Now Worth Billions (Forbes)

Robinhood Billionaire Cofounders’ Fortunes Nearly Double In Two Days Amid Stock’s Wild Rally (Forbes)

Robinhood’s Triumph: More Than A Billionaire Windfall (Forbes)