Key Takeaways

  • Net cumulative funded accounts increased 129.6% to 22.5 million during the second quarter.
  • Net cumulative funded accounts reflect the number of user accounts containing funds for the purpose of trading stocks, options, and other financial securities on the company's trading platform.
  • Robinhood's revenue rose 131.5% year over year, driven by cryptocurrency trading.
Robinhood Earnings Results
Metric  Beat/Miss/Match Reported Value Analysts' Prediction
Adjusted/GAAP EPS N/A (Numbers not comparable) -$2.16 (GAAP EPS) -$0.26 (Adjusted EPS)
Revenue Beat $565.3M $559.6M
Net Cumulative Funded Accounts  N/A  22.5M N/A (Data not available)

Source: Predictions based on analysts' consensus from YCharts

Robinhood (HOOD) Financial Results: Analysis

Robinhood Markets, Inc. (HOOD) reported Q2 FY 2021 earnings after the close of markets on Aug. 19, 2021. The company posted a GAAP loss per share of $2.16 compared to a GAAP earnings per share (EPS) of $0.09 in the year-ago quarter. Due to Robinhood just recently becoming a publicly traded company, there is a lack of data regarding EPS estimates. There was no available GAAP EPS estimate for this story. Analysts had predicted an adjusted loss per share of $0.26 for the quarter, but this figure is not comparable to the GAAP figure unless investors know what adjustments were made to arrive at the adjusted figure.

Robinhood's revenue surpassed consensus estimates, rising 131.5% year over year (YOY). The company's shares fell more than 3% in post-market trading. Robinhood's shares began trading on the Nasdaq at a price of $38 per share on July 29, 2021, after the company completed its initial public offering (IPO). The shares are up 31.1% from that initial opening price. By comparison, the S&P 500 was basically flat over the same period.

HOOD Net Cumulative Funded Accounts

Robinhood's net cumulative funded accounts rose 129.6% to 22.5 million in Q2 FY 2021. The company said that more than 60% of net cumulative funded accounts were trading in cryptocurrencies during the quarter.

The company defines net cumulative funded accounts as total net funded accounts over a given period. A funded account is one in which the account user has made an initial deposit or money transfer during the relevant period. The money in that account is available to be used for various products on Robinhood's platform, such as for trading stocks and other financial securities. The metric provides a measure of the size of the company's user base, specifically a user base that has funds ready to be deployed on the platform.

HOOD Transaction-Based Revenues

Robinhood's revenue growth was largely driven by a 140.7% YOY increase in transaction-based revenues. Transaction-based revenues are those generated by selling users' stock, options, and cryptocurrency trades to market makers who execute the orders. This practice is known as payment for order flow (PFOF), or in the case of cryptocurrencies, "Transaction Rebates."

PFOF is a controversial practice. Supporters claim that PFOF, by allowing brokerages to outsource customer trades to market makers, results in better prices than the national best bid and offer (NBBO) on the official stock exchanges. But critics, including Securities and Exchange Commission (SEC) Chairman Gary Gensler, argue that PFOF creates conflicts of interest because the brokerage has an incentive to direct trades to market makers paying the highest rebates rather than offering the fastest trades at the best prices. Gensler said earlier this year that the SEC planned to review the practice, which is raising concerns that Robinhood's business model could be at risk.

Robinhood's transaction-based revenues accounted for as much as 79.8% of total revenue in the second quarter. The significant rise in transaction-based revenues was largely driven by cryptocurrency trading, which increased to $233 million during Q2 compared to $5 million in the year-ago quarter.

HOOD Outlook

Robinhood expects a slowdown in trading in Q3 FY 2021 after a strong second quarter with record revenues. "[W]e 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 regarding the third quarter, which will end Sept. 30, 2021.