Robinhood’s Shares Drop despite First GAAP Profitability

Robinhood’s Shares Drop despite First GAAP Profitability

Time Stamp: August 2, 2023 6:43 PM
Source Node: 2800445

After
generating a massive net loss of $511 million during the first quarter of the
year, Robinhood has returned a net income of $25 million, according to its
second-quarter results released today (Wednesday). The American commission-free
online trading provider also saw its revenue jump 10% to $486 million during
the recent quarter.

During the
last quarter, which ended on June 30, the Nasdaq-listed broker’s earnings per
share (EPS) also rose to $0.03, compared to a negative EPS of $0.57 during the
first three months of this year. However, despite recording its fifth
consecutive quarter of revenue growth, Robinhood’s monthly active users (MAU)
slumped by 1 million to 10.8 million.

Conversely,
the number of accounts
funded with money climbed by 70,000 to 23.2 million between April and June 2023. At the end of the first quarter,
the number had expanded by 120,000 to 23.1 million.

Meanwhile, Robinhood
reported growth in its total net revenue for the most recent quarter despite
generating lower transaction-based revenues during the period. The revenue was
primarily boosted by the brokerage’s “seasonally higher” earnings
from processing proxy votes for companies.

In
addition, the revenue Robinhood generated from the interest earned on its cash
and securities during the quarter shot up by 13% to $234 million. This was “driven by
growth in interest-earning assets, higher short-term interest rates, and
increase securities lending activity,” the broker said.

On the
contrary, Robinhood’s revenue from transaction-based revenues went down by 7%
quarter-over-quarter to $193 million, with the firm’s revenues from options, cryptocurrency and
equities trading activities
trending down by 5%, 18% and 7% to $127 million, $31 million and $25 million,
respectively.

Stock
Declines despite First GAAP Profitability

Providing more details, Robinhood noted that it
generated its first GAAP profitability during
the second quarter. This refers to total earnings calculated according to the generally
accepted accounting principles (GAAP). The firm achieves the
record even as its assets
under custody ascended by 13% QoQ
to $89 billion, driven by higher equity valuations and continued net deposits.

“Reaching
GAAP profitability is a testament to the work our team has done to transform
the business and better position Robinhood to drive shareholder value,” Jason
Warnick, Chief Financial Officer of Robinhood Markets, stated in the report.
“With five consecutive quarters of revenue and Adjusted EBITDA growth, we’re
continuing to drive efficiency across our operations while investing in
customer experience.”

However,
Google data shows that the price of the brokerage’s stock shrank by 3.34% to
$12.44 on Wednesday, dropping
further by 6.91% in after-market hours.

Source: Google data

This is
despite the fact that analysts believe that the broker’s performance during the
recent quarter was better off.

“Robinhood’s
strong Q2 result is another indicator that the financial services company may
be starting to come out of the woods,” Jesse Cohen, Senior Analyst at
Investing.com, told
Finance Magnates. “While shares of the online broker fell in post-market
trading, I think a lot has to do with the negative sentiment in the market
resulting from the historic US debt downgrade.”

Cohen
added: “All in all, this is a solid report, but investors appear to be stepping
back due to broader market conditions.”

IG’s share buyback; new features on Fortex; read today’s news nuggets.

After
generating a massive net loss of $511 million during the first quarter of the
year, Robinhood has returned a net income of $25 million, according to its
second-quarter results released today (Wednesday). The American commission-free
online trading provider also saw its revenue jump 10% to $486 million during
the recent quarter.

During the
last quarter, which ended on June 30, the Nasdaq-listed broker’s earnings per
share (EPS) also rose to $0.03, compared to a negative EPS of $0.57 during the
first three months of this year. However, despite recording its fifth
consecutive quarter of revenue growth, Robinhood’s monthly active users (MAU)
slumped by 1 million to 10.8 million.

Conversely,
the number of accounts
funded with money climbed by 70,000 to 23.2 million between April and June 2023. At the end of the first quarter,
the number had expanded by 120,000 to 23.1 million.

Meanwhile, Robinhood
reported growth in its total net revenue for the most recent quarter despite
generating lower transaction-based revenues during the period. The revenue was
primarily boosted by the brokerage’s “seasonally higher” earnings
from processing proxy votes for companies.

In
addition, the revenue Robinhood generated from the interest earned on its cash
and securities during the quarter shot up by 13% to $234 million. This was “driven by
growth in interest-earning assets, higher short-term interest rates, and
increase securities lending activity,” the broker said.

On the
contrary, Robinhood’s revenue from transaction-based revenues went down by 7%
quarter-over-quarter to $193 million, with the firm’s revenues from options, cryptocurrency and
equities trading activities
trending down by 5%, 18% and 7% to $127 million, $31 million and $25 million,
respectively.

Stock
Declines despite First GAAP Profitability

Providing more details, Robinhood noted that it
generated its first GAAP profitability during
the second quarter. This refers to total earnings calculated according to the generally
accepted accounting principles (GAAP). The firm achieves the
record even as its assets
under custody ascended by 13% QoQ
to $89 billion, driven by higher equity valuations and continued net deposits.

“Reaching
GAAP profitability is a testament to the work our team has done to transform
the business and better position Robinhood to drive shareholder value,” Jason
Warnick, Chief Financial Officer of Robinhood Markets, stated in the report.
“With five consecutive quarters of revenue and Adjusted EBITDA growth, we’re
continuing to drive efficiency across our operations while investing in
customer experience.”

However,
Google data shows that the price of the brokerage’s stock shrank by 3.34% to
$12.44 on Wednesday, dropping
further by 6.91% in after-market hours.

Source: Google data

This is
despite the fact that analysts believe that the broker’s performance during the
recent quarter was better off.

“Robinhood’s
strong Q2 result is another indicator that the financial services company may
be starting to come out of the woods,” Jesse Cohen, Senior Analyst at
Investing.com, told
Finance Magnates. “While shares of the online broker fell in post-market
trading, I think a lot has to do with the negative sentiment in the market
resulting from the historic US debt downgrade.”

Cohen
added: “All in all, this is a solid report, but investors appear to be stepping
back due to broader market conditions.”

IG’s share buyback; new features on Fortex; read today’s news nuggets.

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