Robinhood posts US$423m net loss, shares sink after hours

[BENGALURU] Commission-free brokerage Robinhood Markets Inc on Thursday posted a US$423 million net loss in the latest quarter, and its shares tumbled as much as 15 per cent in after-hours trade even as revenue edged past analysts'estimates.

Robinhood reported a net loss of US$423 million or US$0.49 per share in the three months ended December. A year earlier, which was before its IPO, the company posted net income of US$7 million or US$0.01 per share.

Shares of Robinhood sank as much as 15 per cent to US$9.98 in extended trading following results. The share price at its IPO in July last year was US$38, and its record high in August was US$85.

Robinhood, in its third set of results as a public company, posted total revenue of US$363 million for the fourth quarter ended Dec 31, compared to US$318 million a year earlier.

Analysts on average had expected revenue of US$362.14 million, according to IBES data from Refinitiv.

Robinhood's costs during the fourth quarter increased 162 per cent from the previous year, contributing to the company's net loss.

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On a call with reporters, Robinhood chief financial officer Jason Warnick attributed much of the costs to share-based compensation and increasing headcount.

"We think we're in a really good position to start slowing that from here," he said.

Transaction-based revenue from cryptocurrencies jumped 304 per cent to US$48 million in the fourth quarter, while revenue from equity trading declined 35 per cent to US$52 million.

Like many tech start-ups, Robinhood has yet to turn a profit following its IPO.

Although revenue was a positive sign, its monthly active users declined 8 per cent from the previous quarter to 17.3 million as retail investors pulled back from the market.

Still, Warnick said that "there is nothing to suggest our customers are disengaging."

He said it was possible Robinhood will become profitable in 2022, but indicated 2023 was a more likely target depending on overall market conditions and the launch of new products.

Robinhood enjoyed a strong run during the pandemic, with homebound investors using its app to trade stocks and other assets. It was at the centre of a trading mania for meme stocks in January last year.

But last year's retail trading frenzy also precipitated a number of regulatory probes. Robinhood's legal costs soared from US$1.4 million in 2019 to more than US$136 million in July 2021.

Trading activity rose when the Federal Reserve injected massive liquidity into capital markets and investors raced to cash in on the boom. But now the Fed is expected to scale back asset purchases and raise interest rates.

Cryptocurrencies have been hammered recently. Bitcoin, the largest cryptocurrency, plunged 50 per cent to US$32,951 last week.

For the first quarter of this year, Robinhood expects total net revenue will be less than US$340 million, which would be down 35 per cent from a year earlier, when the meme stock rally boosted trading.

Several analysts believe Robinhood's share price could be pressured by worries about a potential crackdown from the US Securities and Exchange Commission (SEC) on payment for order flow (PFOF) - whereby brokers route trades to wholesale market makers in return for a fee.

Robinhood derived approximately 72 per cent of its revenue from PFOF and other transaction rebates in the fourth quarter of 2021.

It has said it does not expect the SEC to ban the practice, but expressed confidence it could find other ways to generate revenue, possibly executing client orders internally.

This week, Robinhood said it had built a net capital position of US$2.8 billion, more than 21 times what is currently required by the Securities and Exchange Commission, among other steps to avoid trading restrictions. REUTERS