Cryptocurrency trading slump drags down Robinhood revenues


Robinhood showed signs that its once-booming throng of retail investors are cooling to the online brokerage, reporting that its user growth plateaued and cryptocurrency trading stalled in the last quarter.

Although analysts had predicted a slowdown in trading volumes, the sharp drop in crypto trading was unexpectedly severe, with transaction revenues from the volatile asset class falling 78 per cent, from $233m in the second quarter to $51m in the third.

The drop-off in crypto trading dragged down Robinhood’s overall revenue per user by 42 per cent, helping send its shares down as much as 10 per cent in after-hours trading, according to FactSet data. Transaction revenues dropped 41 per cent, from $451m in the second quarter to $267m in the third.

Vlad Tenev, Robinhood chief executive and co-founder, said the company had used the quarter to develop new products such as crypto wallets that could serve as the basis for future growth. “We believe that Robinhood is becoming the most trusted and intuitive platform for retail and crypto investors,” he said.

Robinhood went public in July in an offering touted as part of the meme stock revolution that was democratising finance by bringing millions of new retail investors into the public markets and cryptocurrencies.

The group estimated that half of all new brokerage accounts opened from 2016 to 2021 were on its platform, and half of its own 22.4m funded accounts opened since 2015 were first-time investors. Monday evening’s drop in Robinhood shares took them below their IPO price of $38.

Column chart of Crypto trading revenue drops in Q3 from record highs ($m) showing Robinhood's transaction revenue

Monthly active users on the platform fell from 21.3m to 18.9m over the last quarter. The brokerage said the decline in crypto activity also led to “considerably fewer” new accounts, as well as a drop in total funded accounts on the platform.

Funded accounts fell from 22.5m to 22.4m and new customers opened just 660,000 accounts, down from 5m in the second quarter. The broker also cautioned that headwinds will probably persist into the fourth quarter.

Although summer months are traditionally slower for retail broker dealers, Robinhood’s results underperformed more traditional players such as Charles Schwab, according to Devin Ryan, director of financial technology research at JPMorgan.

Brokerages such as Schwab “are still seeing strong metrics of engagement such as net new asset growth, which remains very healthy”, Ryan said.

Robinhood added crypto “wallets” to the platform earlier this month, a move that puts it in direct competition with more established digital currency venues such as Coinbase.

Despite the slowdown, Robinhood has grown rapidly over the past year. Cryptocurrency transaction revenues were still up more than 800 per cent from the same quarter last year.

“The company had telegraphed the tone of the quarter pretty well with second-quarter results,” Ryan said. “The question is: are we returning to a more normal level of activity after an arguably unsustainable first half of the year?”

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