What to Look For From HOOD

Robinhood Markets Inc. (HOOD) has suffered a total of nearly $3.3 billion in net losses in the most recent three quarters, dwarfing its revenue during the same period. While a promising sign is that losses are narrowing, the fintech company’s revenue growth has dramatically slowed in recent quarters. At least one cause is the fading momentum of the recent cryptocurrency boom, which could hinder Robinhood’s future performance.

Investors will be watching to see if Robinhood, which went public about six months ago, can return to profitability when it reports earnings on Jan. 27, 2022 for Q4 FY 2021. Analysts expect the company to post its fourth straight quarterly adjusted loss per share. Revenue is expected to rise 12.9%, slowing significantly from previous quarters.

Investors will also be focused on Robinhood’s cryptocurrency trading revenue, a key metric that gauges the amount of revenue that the company generates from cryptocurrency transactions conducted by its users. Analysts expect the company’s cryptocurrency trading revenue to rise at a rapid pace, albeit slower than the rate in each of the previous four quarters.

Shares of Robinhood have underperformed the broader market since they began trading on the Nasdaq in late July after the company went public through an initial public offering (IPO). The stock skyrocketed in early August of 2021 shortly following the IPO. Since then, it has been on a gradual downward trajectory and began to lag the market around mid-November. As a result, Robinhood has lost more than half of its market value since going public.

Robinhood Earnings History

Robinhood reported Q3 FY 2021 earnings that missed analysts’ expectations. The company reported its third straight adjusted loss per share, but it was significantly smaller than the adjusted losses posted in the previous two quarters. Revenue grew 35.4% year over year (YOY), its slowest pace in at least seven quarters. Robinhood said that it opened its waitlist for crypto wallets during the quarter, and that more than one million customers have signed up. A crypto wallet is a place where cryptocurrencies can be stored securely.

For Q2 FY 2021, the first quarter in which Robinhood publicly filed its financial results, the company reported earnings that missed expectations while its revenue beat estimates. The company reported an adjusted loss per share of $2.16, a significant improvement from the previous quarter’s adjusted loss of $6.22 per share. Revenue more than doubled at a robust pace of 131.5%, but it was still the slowest pace of growth since the first quarter of FY 2020. The company said that crypto engagement on its platform reached record levels during the quarter.

Analysts expect Robinhood to report another adjusted loss per share in Q4 FY 2021, but it is forecast to be smaller than the adjusted losses posted in each of the past three quarters. Revenue is expected to rise 12.9%, which would be the slowest pace of growth out of any quarter in at least the past two years. For full-year FY 2021, analysts expect an adjusted loss per share of $3.75, a significant deterioration from the adjusted earnings per share (EPS) of $0.13 posted in the previous year. Annual revenue is expected to rise 89.1%, a dramatic slowdown from last year’s pace of 245.5%.

Robinhood Key Stats
	Estimate for Q4 FY 2021	Q4 FY 2020	Q4 FY 2019
Adjusted Earnings Per Share ($)	-0.08	0.13	-0.18
Revenue ($M)	358.5	317.5	72.2
Cryptocurrency Trading Revenue ($M)	51.7	11.9	1.4

^{Source: Visible Alpha}

The Key Metric

As mentioned above, investors will also be focusing on Robinhood’s cryptocurrency trading revenue. Robinhood generates the majority of its revenue from transaction fees related to the trading of equities, options, and cryptocurrencies. This form of revenue, which the company calls “transaction-based revenue”, is generated through the collection of fees that the company receives in return for routing its users’ trades to market makers. In respect to equities and options trading, these fees are known as payment for order flow (PFOF), a controversial practice that has come under scrutiny from the SEC. In respect to cryptocurrency trading, these fees are referred to by Robinhood as “Transaction Rebates.” While Robinhood’s cryptocurrency trading revenue has soared over the past year, cryptocurrencies have been losing value over the last several months.

In the final quarter of FY 2020, the company’s cryptocurrency trading revenue rose 737.2% compared to the year-ago quarter. Growth dramatically accelerated in the first quarter of FY 2021 and again in the second quarter, with cryptocurrency trading revenue up nearly 21 times YOY in Q1 and nearly 44 times YOY in Q2. While growth slowed in Q3, revenue from cryptocurrency trading was still up 865.5% YOY. In Q4 FY 2021, analysts expect cryptocurrency trading revenue to rise 335.7%, which would be the slowest pace of growth since the third quarter of FY 2020.