Although Robinhood Markets’ fourth-quarter profitability fell short of forecasts, the broker’s results had a lot to admire. But not if you’re an investment in Coinbase Global, a cryptocurrency-focused competitor.
Robinhood (HOOD) shares rose as high as 6.5% in early Thursday trading as investors greeted what Piper Sandler analyst Richard Repetto described as proof that the retail trader-focused broker was “doing all the right things.” By afternoon, however, the price had abruptly reversed, plummeting over 5% on the day.
Of course, a 19-cent loss per share in the last three months of 2022 isn’t fantastic — and it’s worse than the 15-cent loss predicted by experts due to a big trading blunder. However, there is a vast list of reasons to be cheerful.
Here are a few examples: Robinhood added 50,000 new funded accounts and benefited from increased interest rates, resulting in a 30% increase in net interest revenue. Fewer than half of sales came from transactions for the first time, indicating solid diversification focused on growth.
The group also announced plans to repurchase a 7.5% share in the firm owned by former FTX CEO Sam Bankman-holding Fried’s company. This gives investors some assurance about the future of the substantial shareholding, which has been a concern.
“With costs under control and a strong cash position, client engagement and Robinhood’s growth are the paths to profitability,” Repetto wrote in a research note.
“We continue to look for a turnaround in monthly active user growth, a more convincing pick up in trading volumes, and/or successful new product rollouts to become more optimistic on Robinhood,” said Repetto, whose rating remains Neutral. “That said, we do acknowledge the progress that Robinhood has made towards achieving…profitability.”
All of this is good news for Robinhood investors. It’s a different scenario for those watching the company’s earnings for a read-across to Coinbase.
“We are happy to see that Robinhood’s exposure to crypto is just ~10% of revenue vs. a more problematic 100% for Coinbase,” Mizuho Securities analyst Dan Dolev wrote in a Thursday note.
In case you haven’t noticed, cryptocurrencies are going through bad times. The brutal bear market in Bitcoin and other digital assets is hitting businesses across the sector, including Coinbase, which has seen its core customer base of retail traders largely go haywire.
Digital asset trading continued declining at Robinhood through last year’s end. In the fourth quarter, it was about 10% of total revenue – down from 15% at the peak of the Bitcoin bull market in the fourth quarter of 2021.
What may be concerning ahead of Coinbase results on Feb. 21 is how far Robinhood’s crypto business fell short of analysts’ forecasts. Crypto isn’t a big problem for Robinhood investors, but Coinbase still relies heavily on those trade volumes.
Robinhood’s crypto transaction volume of $39 million fell far short of the $49.5 million predicted by FactSet analysts.
Analysts predict a $2.51 per-share loss for Coinbase, the company’s largest ever. However, Robinhood’s crypto letdown, disguised as good news, does not bode well.