Robinhood Beats Q3 Estimates, Stock Gains

Source: Predictions based on analysts' consensus from Visible Alpha, news reports

Robinhood Financial Results: Analysis

Robinhood Markets, Inc. (HOOD) shares rose 4% on Nov. 2 in after-hours trading, after the brokerage popular with young retail investors topped analysts' Q3 earnings and revenue estimates even as the number of active users continued to decline amid what Robinhood called "the volatile market environment."

Robinhood posted a Q3 net loss of $0.20 per share, while analysts expected a loss of $0.31 per share according to news reports citing Capital IQ and FactSet. Revenue slipped 1% year over year but rose 14% sequentially over Q2. The company said it had reached its goal of achieving profitability a quarter earlier than planned based on adjusted EBITDA, a non-GAAP measure that excludes a range of cash and non-cash costs. Robinhood reported adjusted EBITDA of $47 million for the quarter, a $127 million improvement from Q2.

Robinhood has tried to stem red ink by cutting costs, laying off 23% of its workforce in August after cutting 9% earlier in the year. Operating expenses declined 12% sequentially as a result, despite $90 million in restructuring charges tied to the August layoffs.

Net interest revenue representing interest earned on margin and securities lending, corporate cash, and client accounts, continued to rise with interest rates, up 73% sequentially to $128 million. Robinoood still derives most of its revenue from payments for order flow (PFOF) it receives from market makers for letting them execute buy and sell orders from its customers.

Net cumulative funded accounts—those with positive balances—increased by about 60,000 to 22.9 million, the company said. Despite the bear markets in stocks, bonds, and cryptocurrencies, Robinhood's customers made $2.7 billion of net deposits into their accounts during the quarter and have added $18 billion over the past year, representing a 19% annualized growth rate.

Robinhood's Outlook and Conference Call

Robinhood said that it expects to reduce operating expenses for FY 2022 by 31% to 32% from last year's, steeper than the cut of 25% to 29% it projected three months ago.

"We're going to have a mindset of being lean and scrappy, but it doesn't mean we're not going to make investments to drive growth," CEO Vlad Tenev said during the earnings conference.

The company is projecting a $25 million sequential increase in net interest revenue in Q4, executives said on the conference call. Asked why interest revenue won't increase even more in light of the rises in interest rates during the quarter, company officials cited a drop in margin balances, softness in securities lending, and the recent increase to 3% of the yield on uninvested account balances for "Gold" customers willing to pay a $5 monthly fee.

Robinhood's next earnings report (for Q4 FY 2022) is expected to be released on Jan. 26, 2023.