Robinhood Q3 results 2021: Shares plunge 11% as earnings fail to meet street estimates.

Robinhood Q3 results 2021: Shares plunge 11% as earnings fail to meet street estimates.

Last updated: 28 Oct, 2021 | 11:16 am

Robinhood Q3 results 2021: Shares plunge 11% as earnings fail to meet street estimates.

Loss widens: Net loss for the quarter ended Sep stood at $1.37 billion, compared to $11 million in the last quarter. The huge rise in net losses was due to share-based compensation expenses totaling to $1.24 billion in Q3 2021 of which $1.01 billion was recognized upon its IPO. The net loss in the last quarter stood at $512 million.

Revenue falls: For the third quarter, total net revenue came in at $365 million, missing a street estimate of $431.5 million. Revenues increased 35% on year but were well below the second quarter’s revenue of $565 million. The sudden increase in Q2 revenue was due to a massive surge in crypto (Dogecoin) trading. Average Revenues Per User (ARPU) decreased 36% to $65, compared with $102 in the third quarter of 2020. Analysts were expecting Q3 ARPU of $73.99.

Transaction-based revenues: Third-quarter transaction based revenue totaled $267 million, increased 32% compared with $202 million in the same quarter last year. Revenue from Cryptocurrencies increased 860% to $51 million, compared to $5 million a year ago. However, revenue from crypto trading fell from $233 million in the last quarter due to huge interest in meme-inspired dogecoin trading. Options increased 29% to $164 million, compared to $127 million in the year ago quarter. Equities, however, decreased 27% to $50 million, compared with $69 million in the third quarter of 2020.

Margins and MAU: Adjusted EBITDA (non-GAAP) was negative $84 million, compared with positive $59 million in the same quarter last year and $ 90 million in the last quarter. However, the EBITDA margin increased 7% sequentially and 1% on year. Monthly Active Users (MAU) increased 76% to 18.9 million, compared with 10.7 million in the year ago quarter. However, it was down from 21.3 million in the last quarter. Analysts had expected MAU around 21.9 million.

Net Cumulative Funded Accounts:  Net cumulative accounts increased 97% to 22.4 million, compared with 11.4 million last year. However, it dropped from 22.5 million in the second quarter.  Analysts had expected it to be around 24.4 million. As Crypto activity declined from record highs in the prior quarter, it led to considerably fewer new funded accounts and lower sequential revenue. Assets Under Custody (AUC) increased 115% to $95 billion, compared with $44 billion last year.

Reduced Crypto trading: The sudden surge in crypto volume was due to the massive trading of Dogecoin promoted by Elon Musk. But Dogecoin wasn’t going to be forever and hence there is a massive drop in overall performance of Robinhood. Robinhood had warned in its IPO filing that while a substantial portion of the recent growth in its net revenues was attributable to transactions in Dogecoin, “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.” However, the company believes that the growth of the crypto industry will provide the long-term growth that shareholders should benefit from over time.

Regulatory issue: A recent regulatory filing about the share sale showed that 72% of Robinhood's total revenue in 2020 came from payment for order flow (or PFOF). But that business model is under scrutiny. Regulators worry that retail traders are not getting the best price execution, with PFOF creating a conflict of interest for brokerage companies. Officials in the U.S. also have crypto trading, which Robinhood offers, under their watch. The future of payment for order flow is the biggest question now. Other stock brokers also make money from PFOF but Robinhood relies more heavily on this revenue model.

Q4 Outlook: For the three months ending December 31, 2021, the company anticipates that many of the factors that impacted its third quarter results, such as seasonal headwinds and lower retail trading activity, may persist. In the absence of any changes to the market environment or unexpected events, it believes that it may result in quarterly revenues no greater than $325 million and full year revenue of less than $1.8 billion. Additionally, they expect new funded accounts for the fourth quarter will be roughly in line with the 660,000 opened in the third quarter of 2021.

Robinhood Q3 results Review: 

Due to the sudden surge in crypto trading last quarter, Robinhood has failed to keep the momentum and has reported weak set of numbers, below street estimates. The business is affected by many factors, including seasonality, general market conditions (including volatility) and retail trading behavior as well as significant, unanticipated market events. Q2 was kind of one of those distinct market events. According to the company, it's a great way to bring a lot of new customers onto the platform but the company is really thinking about investing in crypto as  a long term plan.

For operating expenses, the company will continue to invest in key areas to enhance platform capabilities, drive product innovation and improve customer support, as well as building upon its regulatory and compliance functions. As of September 30, 2021, there was $2.17 billion of unrecognized share-based compensation expense that the company expects to recognize over a weighted-average period of 2.56 years. Robinhood hit the public markets in July, opening at $38 per share. The stock closed at $35.44 per share on Wednesday.