Robinhood Posts Weak July 2022 Operating Metrics, Yet Betting Against the Stock Seems Wrong

Robinhood Markets, Inc. (NASDAQ: HOOD) on Thursday reported several key operating statistics comparing the month of July to prior months. Given the far better tone of equity and cryptocurrency markets in July versus the second quarter, the data has to be considered disappointing.

Monthly active users at the end of July fell to 13.2 million from 14.0 million at June 30, 2022, and total July trading volumes in stocks, equity options and digital currencies all fell noticeably from the average month in 2Q 2022. Such declines occurred despite marked July monthly gains of 9.1%, 12.3% and 18.0% in the S&P 500 Index, the NASDAQ, and the price of Bitcoin, respectively.

(in thousands of US dollars, except otherwise noted)Twelve Months Ended 6-30-22July 20222Q 20221Q 20224Q 2021
Cumulative Funded Accounts (millions)22.922.922.822.7
     Sequential Growth0.4%0.4%1.3%
Monthly Active Users (millions)
     Sequential Growth-11.9%-8.1%-8.5%
Assets Under Custody (US$ billions):
     Net Cash Held by Users$3.9$3.8$2.0
Assets Under Custody (US$ billions)$74.6$64.2$93.1$98.1
     Sequential Growth-31.0%-5.1%3.3%
Trading Volumes:
   Equity (US$ billions)$49$163$189$240
   Option Contracts (millions)67210237291
   Cryptocurrencies (US$ billions)$6$20$23$44
Average Account Balance (US$)$2,803$4,083$4,322
     Sequential Growth-31.3%-5.5%1.9%
Average Revenue Per User (US$)$56$53$64
     Sequential Growth5.7%-17.2%-1.5%
Options PFOF Revenue$567,000$113,000$127,000$163,000
Cryptocurrency PFOF-Type Revenue$211,000$58,000$54,000$48,000
Equities PFOF Revenue$167,000$29,000$36,000$52,000
Other PFOF Revenue$6,000$2,000$1,000$1,000
PFOF or PFOF-Type Revenue $951,000$202,000$218,000$264,000
All Other Revenue$394,000$116,000$81,000$99,000
Net Revenue$1,344,713$318,000$299,000$362,713
     Sequential Growth6.4%-17.6%-0.6%
Adjusted EBITDA($393,843)($80,000)($143,000)($86,844)
Debt – Period End$154,000$203,000$151,000
Shares Outstanding (millions)878.3869.8863.9
PFOF = payment for order flow.

Note that Robinhood’s trading volumes in stocks and cryptocurrencies are measured in dollars, boosting dollar volumes. Consequently, the underlying “unit” volume declines in July were even more pronounced than the raw figures imply.

In early August, Robinhood announced weak, but better than feared, 2Q 2022 results as well as plans to cut a whopping 23% of its workforce. The most encouraging aspect of the earnings release related to a marked sequential improvement in Robinhood’s cash flow deficit in the quarter. Its adjusted EBITDA in 2Q 2022 was negative US$80 million, much improved from negative $143 million in 1Q 2022, and the company’s best quarterly performance on this measure since it posted positive US$90 million of adjusted EBITDA in 2Q 2021.

There were negatives in the quarter: monthly active users fell to 14.0 million on June 30 from 15.9 million on March 31, and 17.3 million at year-end 2021. Even more alarming, the average balance of a Robinhood account holder plunged about 31% in just one quarter to US$2,803 on June 30,2022, from US$4,083 on March 31, 2022.

Robinhood’s stock market capitalization is about US$8.2 billion, about US$5.8 billion of which is supported by its net cash position making its enterprise value only around US$2.4 billion. Robinhood’s shares are down roughly 90% from its all-time high achieved in early August 2021. With its cash flow improving despite disappointing revenue realizations in July 2022 and a difficult macro backdrop in 2Q 2022, and ongoing expenses promising to fall even further after the 23% headcount reduction (equivalent to about 780 employees), it would seem prudent for investors not to bet against the stock. In addition, while it has not been conferred “meme stock” status yet by a certain segment of the investment world, that has to be considered a possibility.

Robinhood Markets, Inc. last traded at US$9.26 on the NASDAQ.

Information for this briefing was found via Edgar, Bloomberg, and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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