Shares of retail brokerage Robinhood fell as more than 12 per cent in after-hours trade due to it missing revenue targets in the final quarter of 2021, as retail trading fervour in “meme” stocks and cryptocurrencies lost steam.
Robinhood said it expected revenues to decline 35 per cent in the current quarter to less than $340m compared to the first quarter of 2021, the height of the meme-stock trading frenzy.
The brokerage, which became synonymous with the rise of trading by everyday investors since the start of the pandemic, reported net revenue of $363m, $7m short of expectations, in the fourth quarter of 2021. Net losses were $423m.
Robinhood has grown rapidly — adding 10m funded accounts to its platform in 2021 and doubling in size — with more than half of new sign-ups being first-time investors. January’s market correction has been the first test of how new stock traders who have only known rising markets would react in a downturn, analysts said.
Robinhood went public in July to much fanfare, at a $38 a share valuation. But the brokerage has faced headwinds as the forces that pushed it to its high initial public offering valuation, such as fiscal stimulus and bull markets, have stalled. The broker’s shares have lost two-thirds of their value since their IPO, and are down 83 per cent from an August high of $85. The share price was at $10.20 in after-hours trade.
The broker’s main source of revenue, payment for order flow, has also slowed. For the quarter, Robinhood’s revenues from the system in which big traders pay brokers for their orders, increased 12 per cent from the previous year to $263m, but slowed from the previous quarter when it made $267m in transaction-based revenue.
Revenue from cryptocurrency trading, vital to the company’s revenue, was up 304 per cent from the same quarter last year to $48m, but down from $51m in the third quarter.
Robinhood is focused on new products such as savings products to diversify its revenue, placing significant hopes for the future on its cryptocurrency wallet. Crypto wallets are expected to launch at the end of March.
Vlad Tenev, co-founder and chief executive, said: “This year, we’ll expand our ecosystem of products that make Robinhood the best place to start investing.”
The broker’s results come almost exactly a year after thousands of retail traders organised on the social media platform Reddit to push up the prices of a handful of hard-luck companies such as GameStop.
The ensuing trading mania pushed millions of people to join retail brokerage platforms, delivering huge growth to those companies. But these trading levels were never sustainable, analysts said.