On March 29, Robinhood Markets, Inc. (NASDAQ: HOOD) stock soared US$3.43, or 27%, to US$16.24 on plans to extend its trading day for customers by four hours to 7am ET to 8pm ET. Some of this increase may simply represent a catch-up rally, as other recovering meme stocks have outpaced Robinhood over the last few weeks. However, the expanded trading day may have comparatively little bottom-line impact for two reasons, suggesting the rally could be overdone.
First, the average account size at Robinhood is only US$4,317 (US$98 billion assets under custody divided by 22.7 million cumulative funded accounts). It seems doubtful that the additional hours could prompt a dramatic increase in trading in accounts of such size.
| (in thousands of US dollars, except otherwise noted) | 4Q 2021 | 3Q 2021 | 2Q 2021 | 1Q 2021 |
| Cumulative Funded Accounts (millions) | 22.7 | 22.4 | 22.5 | 18.0 |
| Sequential Growth | 1.3% | -0.4% | 25.0% | 44.0% |
| Monthly Active Users (millions) | 17.3 | 18.9 | 21.3 | 17.7 |
| Sequential Growth | -8.5% | -11.3% | 20.3% | 51.3% |
| Assets Under Custody (US$ billions): | ||||
| Equities | $72 | $69 | $73 | $65 |
| Options | $2 | $1 | $2 | $2 |
| Cryptocurrencies | $22 | $22 | $23 | $12 |
| Net Cash Held by Users | $2 | $3 | $4 | $2 |
| Assets Under Custody (US$ billions) | $98 | $95 | $102 | $81 |
| Sequential Growth | 3.2% | -6.9% | 25.9% | 28.6% |
| Average Account Balance (US$) | $4,317 | $4,241 | $4,533 | $4,500 |
| Sequential Growth | 1.8% | -6.4% | 0.7% | -10.7% |
| Average Revenue Per User (US$) | $64 | $65 | $112 | $137 |
| Sequential Growth | -1.5% | -42.0% | -18.2% | 29.2% |
| Options PFOF Revenue | $163,000 | $164,000 | $164,604 | $197,860 |
| Cryptocurrency PFOF-Type Revenue | $48,000 | $51,000 | $233,103 | $87,587 |
| Equities PFOF Revenue | $52,000 | $50,000 | $52,012 | $133,301 |
| Other PFOF Revenue | $1,000 | $2,000 | $1,448 | $1,691 |
| PFOF or PFOF-Type Revenue | $264,000 | $267,000 | $451,167 | $420,439 |
| All Other Revenue | $99,000 | $98,000 | $114,166 | $101,735 |
| Net Revenue | $362,713 | $365,000 | $565,333 | $522,174 |
| Sequential Growth | -0.6% | -35.4% | 8.3% | 64.4% |
| Adjusted EBITDA | ($86,844) | ($83,999) | $90,173 | $114,771 |
| Cash | $6,253,477 | $6,166,705 | $5,077,752 | |
| Debt | $0 | $0 | $7,369,522 | |
| Shares Outstanding (millions) | 863.9 | 835.7 | 225.8 | 225.6 |
Second, Robinhood’s success appears far more tied to buoyant financial markets than the length of its trading day. In 1Q 2021 and 2Q 2021, two very strong stock market and cryptocurrency periods, Robinhood’s revenue per user averaged US$137 and US$112, respectively. In the noticeably less robust third and fourth quarters of last year, that statistic was US$65 and US$64, respectively.
Furthermore, Robinhood’s 1Q 2022 results could be even worse. When the company reported its 4Q 2021 results in late January, it projected that 1Q 2022 revenues will be less than US$340 million, or down 6% or more from the depressed 4Q 2021 levels (a quarter where adjusted EBITDA was a loss of US$87 million). This forecast presumed an uptick in February and March trading volumes from those realized in January 2022, but trading activity really did not noticeably improve until mid-March.
Robinhood has a fortress balance sheet; it has US$6.25 billion of cash and no debt as of December 31, 2021. After factoring in this cash horde, Robinhood’s enterprise value (EV) is around US$7.2 billion.
This EV is down 80%-90% from Robinhood’s loftiest levels in the summer of 2021, but it is still quite high in relation to full-year 2021 adjusted EBITDA of only US$34 million. To complicate matters further, this key cash flow measure over the twelve months ended March 31, 2022 is likely to turn decisively negative as a likely loss in 1Q 2022 will replace the positive US$115 million realized in 1Q 2021 in the calculation.
Investors searching for positive anecdotal evidence in high valuation stocks which have suffered severe price corrections found some positive news in Robinhood’s extended trading hours announcement on March 29. The implications of that news seemed to call for a modest move higher in the company’s stock price; instead, investors bid the shares up dramatically.
That optimism does not seem to fit the circumstances.
Information for this briefing was found via Edgar and the companies mentioned. The author has no 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.
