Robinhood Markets Inc (NASDAQ:HOOD) turned profitable in the second quarter of 2023, following a dark period for the hybrid stocks and cryptocurrency exchange.
Granted, earnings per share was a negligible US$0.03, but following EPS of -US$0.19 in the first quarter and quarterly EPS losses as high as -$0.45 in 2022, at least things appear to be heading in the right direction.
In response, investors send Robinhood’s share price down more than 6.5% in pre-market Thursday trades.
What gives?
Though total net revenues increased 10% sequentially to US$486 million, resulting in net income of US$25 million, the core of the business (i.e. transaction-based revenues) declined 7%.
This was sufficiently offset by a 13% surge in net interest revenue on the back of soaring short-term interest rates.
The key phrase here is short-term. With inflation across the developed markets showing signs of abating, bank rates are likely to cool in the months and years ahead.
In the US, the Fed funds rate is estimated to return to 3.5% in 2025 from 5.5% today.
Without strong net interest tailwinds, Robinhood’s revenues will become more heavily weighted towards transaction-based revenues, where the group is struggling.
Monthly active users fell by one million sequentially to 10.8 million in the second quarter.
Furthermore, Robinhood remains significantly exposed to the volatile cryptocurrency sector, with crypto-related revenues falling by 18% sequentially this quarter.
No one knows for sure where the price of Bitcoin is going, but investors clearly see a good reason to place a discount on Robinhood shares in the meantime.
Nonetheless, even though HOOD fell 6.5% in today’s pre-market trades, shares remain over 50% higher year to date.