Robinhood Headed for Latest Loss in Q3 2022 Earnings

Brokerage platform expected to post slower revenue declines

 One Year Total Return for S&P 500 and Robinhood

Key Takeaways

  • Robinhood is expected to post an adjusted loss of 13 cents per share Nov. 2 after market close.
  • Revenue and trading volumes have declined since peaking in the first half of 2021.
  • The SEC has reportedly opted not to ban payment for order flow, but it may impose other rules that could threaten Robinhood's main source of revenue.
  • Margin interest income was up sharply in Q2 over Q1 thanks to rising interest rates.

Robinhood Markets Inc. (HOOD), the brokerage popular with young retail investors, probably lost 13 cents a share in the third quarter, marking its seventh straight quarterly deficit as clients steer clear of trading amid a bear market in stocks and cryptocurrencies, according to estimates from Visible Alpha. Still, if revenue drops just 3%, as analysts expect, it would be a step up from declines of more than 40% on a year over year basis in the year's first two quarters.

Nonetheless, the number of monthly active users (MAU), a measure of Robinhood's engaged client base, is expected to slide to 13.7 million, about a third less than the peak of 21.3 million in the second quarter of last year. The company had 13.3 million users in August and 13.2 million in July.

Robinhood did get some welcome news in September, when Bloomberg reported that the Securities and Exchange Commission (SEC) decided that it wouldn't ban the practice of payment for order flow, as SEC chair Gary Gensler had suggested it might. The practice is crucial to Robinhood's operating model, since the broker offers its clients no-fee trades so it can funnel them for execution to the market-makers who pay Robinhood for the order flow.

While the SEC may have decided against an outright ban, it's still mulling rules that could undermine the value of Robinhood's order flows, including one requiring execution at or above the midpoint of the bid-ask spread for trade orders from retail investors.

Robinhood's investors are trading far less than they did a year ago, according to monthly statistics released by the company. Daily average revenue trades in equities were down 25% year over year in August, while notional trading volume was down a more modest 10%.

The company is benefiting from rising interest rates by charging its customers higher rates on their margin balances. Net interest income increased 35% sequentially to $74 million in the second quarter, accounting for 23% of net revenue.

Robinhood's share price is down 33% in 2022, but it is up 73% from its mid-June low.

 One-year total return for S&P 500 and Robinhood
Source: TradingView.

Source: TradingView

Robinhood Earnings History

In August, the company reported a smaller Q2 loss than analysts expected, while revenue and MAU fell short of estimates. The stock gained nearly 12% the next day.

The Q1 report in late April wasn't as well received, leaving the share price 2.8% lower in the next trading session. Robinhood's loss was deeper than the consensus estimate, while revenue and MAU also disappointed.

Robinhood Key Stats

  Estimate for Q3 FY 2022 Q3 FY 2021 Q3 FY 2020
Adjusted Earnings
Per Share ($)
-0.13 -0.11 -0.04
Revenue ($M) 353.2 364.9 269.5
Monthly Active
Users (M)
13.7 18.9 10.7

Source: Visible Alpha

The Key Metric

Robinhood counts as monthly average users (MAU) every individual who makes a debit card transaction, transitions between two screens on a mobile device, or loads a web page while logged into their account at any point in a calendar month. A client doesn't need to have a funded account or to be active in successive months to be counted as a monthly active user. The company says it considers these users to be a useful metric of engagement positively correlated with revenue and other performance metrics.

Article Sources
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  1. Robinhood Markets Inc. "Monthly Metrics Report for August 2022."

  2. Robinhood Markets Inc. "Monthly Metrics Report for July 2022."

  3. Bloomberg. "SEC Set to Let Wall Street Keep Payment-for-Order-Flow Deals."

  4. The Wall Street Journal. "SEC Favors Midpoint Prices on Investor Stock Trades in Rules Overhaul."

  5. Robinhood Markets Inc. "Robinhood Reports Second Quarter 2022 Results," Page 1.

  6. Robinhood Markets Inc. "Form 10-K for the Fiscal Year Ended Dec. 31, 2021," Page 68.

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