A Not-So-Warm Welcome

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What's going on?

Robinhood posted a disappointing earnings update this week, in the trading platform’s first since it listed on the stock market.

What does this mean?

Meme stocks like GameStop and AMC Entertainment may have boosted Robinhood’s bank balance at the start of the year, but last quarter’s revenue – which surged 131% versus the same time last year – had a different headline-grabber to thank: crypto trading drove around 51% of the company’s revenue, up from 17% in the previous quarter.



The future isn’t looking quite so promising, mind you. For one thing, a significant portion of that trading was on dogecoin, which investors – who might be realizing that the one-time joke is no laughing matter – have sent down more than 50% from its May highs. Throw in the fact that summer tends to be a quiet period anyway, and crypto trading – and, by extension, the segment’s revenue – is likely to drop off this quarter.

Why should I care?

For markets: It’s all about those Benjamins.

If cryptocurrency trading does slow down, it’ll impact Robinhood in one of two ways: it’ll either reduce the amount of cash the company generates, or it’ll push those cash flows into a later quarter (tweet this). Either way, its stock – which investors value by how much cash they think it will generate in the future (discounted back to today) – will be worth less now, which might be why Robinhood’s shares initially fell 10% on Thursday.



The bigger picture: The crypto slowdown is real.

Robinhood is right to be nervous about the crypto market: Nvidia – which reported better-than-expected revenue and profit late on Wednesday – said sales of microchips used for crypto mining last quarter were 30% lower than the chipmaker had been expecting. That suggests there’ll be less enthusiasm for cryptocurrencies themselves going forward, at least in the near term.

Originally posted as part of the Finimize daily email.

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