Robinhood Stock is Down 90% in Eight Months But Still May Be Expensive

On April 28, 2022 after the regular market close, Robinhood Markets, Inc. (NASDAQ: HOOD) reported disappointing earnings results for 1Q 2022. These results represented its third successive disastrous quarter in almost every respect. 

In addition, the company provided no forward revenue or EBITDA guidance. Presumably, if the company detected constructive trend changes, it would have discussed that; so, the lack of sales or cash flow guidance for the balance of the year cannot be interpreted as anything but a negative anecdote.

Robinhood telegraphed the poor results by announcing on April 26 that it was cutting 9% of its workforce, which had risen to 3,800 from around 700 at the beginning of 2020. Remarkably, the company still expects its 2022 total operating expenses (excluding non-cash share-based compensation expenses) to rise 2% to 5% year over year.

The stock plummeted about 11% in after-hours trading to US$9.00, bringing Robinhood’s stock market capitalization down to around US$7.8 billion. Net of its enormous US$6.2 billion of cash and negligible US$0.2 billion of debt, the company’s enterprise value (EV) is US$1.8 billion.

Perhaps the most discouraging aspect of Robinhood’s earnings release is the drastic fall in its adjusted operating cash flow. The company’s adjusted EBITDA in 1Q 2022 and for the twelve months ended March 31, 2022 were negative US$143 million and negative US$224 million, respectively. In 2Q 2021 and 1Q 2021, this cash flow measure totaled positive US$90 million and US$115 million, respectively. A reasonable inference is that Robinhood is be able to post reasonably good results only during extreme bull markets.

(in thousands of US dollars, except otherwise noted)1Q 20214Q 20213Q 20212Q 20211Q 2021
Cumulative Funded Accounts (millions)22.822.722.422.518.0
     Sequential Growth0.4%1.3%-0.4%25.0%44.0%
Monthly Active Users (millions)15.917.318.921.317.7
     Sequential Growth-8.1%-8.5%-11.3%20.3%51.3%
Assets Under Custody (US$ billions):
     Net Cash Held by Users$4$2$3$4$2
Assets Under Custody (US$ billions)$93$98$95$102$81
     Sequential Growth-5.1%3.3%-6.9%25.9%28.6%
Average Account Balance (US$)$4,083$4,322$4,241$4,533$4,500
     Sequential Growth-5.5%1.9%-6.4%0.7%-10.7%
Average Revenue Per User (US$)$53$64$65$112$137
     Sequential Growth-17.2%-1.5%-42.0%-18.2%29.2%
Options PFOF Revenue$127,000$163,000$164,000$164,604$197,860
Cryptocurrency PFOF-Type Revenue$54,000$48,000$51,000$233,103$87,587
Equities PFOF Revenue$36,000$52,000$50,000$52,012$133,301
Other PFOF Revenue$1,000$1,000$2,000$1,448$1,691
PFOF or PFOF-Type Revenue $218,000$264,000$267,000$451,167$420,439
All Other Revenue$81,000$99,000$98,000$114,166$101,735
Net Revenue$299,000$362,713$365,000$565,333$522,174
     Sequential Growth-17.6%-0.6%-35.4%8.3%64.4%
Adjusted EBITDA($143,000)($86,844)($83,999)$90,173$114,771
Shares Outstanding (millions)869.8863.9835.7225.8225.6
PFOF = payment for order flow.

A few of the details of Robinhood’s 1Q 2022 report are outlined below:

Revenue in 1Q 2022 was US$299 million, down 18% from US$363 million in 4Q 2021, and down dramatically from more than US$500 million in both 2Q 2021 and 1Q 2021.

In this same vein, monthly active users fell 8% sequentially to 15.9 million in March 2022 from 17.3 million in December 2021 and 19.5 million in October 2021. The average account balance of a Robinhood user is only US$4,083. Even worse, Robinhood’s monthly revenue per user plummeted to US$53 in 1Q 2022 from US$64 in 4Q 2021 and from US$112 just three quarters ago.

Robinhood shares, which are down an astonishing 90% from the highs of August 2021, are difficult to value given the company’s huge operating cash flow deficit (US$224 million) over the last twelve months. The question is: even though the stock is down so much, does its currently money-losing business merit an EV of US$1.8 billion? On the other hand, Robinhood does have 15.9 million active users, a substantial amount, but it realizes only about US$212 of annualized revenue per user.  

Robinhood Markets, Inc. last traded at US$9.80 on the Nasdaq.

Information for this briefing was found via Edgar and the sources 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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