Robinhood struggles as S&P 500 soars and Bitcoin doubles in price
As the S&P 500 rally this year reaches 15 percent, and the price of Bitcoin has more than doubled since January, one might think that all is well in the world of finance. However, the fate of Robinhood suggests otherwise.
The company, whose app allows users to trade a range of cryptocurrencies, has lost four-fifths of its value since its peak in 2021. On Wednesday, the stock fell an additional 15 percent, highlighting the company’s struggles to regain its footing in the market.
The results of the third quarter underscore the app’s declining popularity among young traders. While Robinhood’s funded accounts increased by 360,000 year-over-year to 23.3 million, fewer customers are actively trading. The number of monthly active users dropped by 16 percent compared to the same period last year, totaling just over 10 million — about half of the peak reached during the retail trading boom two years ago.
However, not all of Robinhood’s competitors are facing the same challenges. Charles Schwab, for instance, added 665,000 active accounts in the third quarter, while Morgan Stanley, which owns E*Trade, added around 300,000 accounts in the September quarter.
Overall, Robinhood’s transaction-based revenue decreased by 11 percent in the quarter to $185 million, due to a significant decline in crypto and stock trading. The company is now earning more from its customers‘ unused cash, with approximately $3.5 billion in cash and securities sitting in separate customer accounts. Net interest income nearly doubled year-over-year to $251 million, yet the company still reported a net loss of $85 million.
The boost from interest income is expected to diminish soon, as the Federal Reserve appears to have completed its interest rate hikes. This will lead to tougher comparisons in the future, reflected in Robinhood’s low valuation at less than four times its revenue, compared to Charles Schwab, which is five times higher.
In an effort to reinvent itself, Robinhood has ventured into new products such as retirement accounts. However, to succeed in this space, it will have to compete with established brands like Charles Schwab and Fidelity. It will need to find more arrows in its quiver to attract more active traders.
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