Robinhood Slumps on Abrupt Slowdown in Retail Trading

© Reuters.

By Dhirendra Tripathi – Robinhood Markets stock (NASDAQ:) plunged 12% to trade below its IPO price of $38 on Wednesday as its August warning of retail activity slowing down came true and the company said this is persisting in the current quarter.

“In the absence of any changes to the market environment or exogenous events, we believe this may result in quarterly revenues no greater than $325 million and full year revenue of less than $1.8 billion. Additionally, we expect new funded accounts for the fourth quarter will be roughly in line with the 660,000 opened in the third quarter of 2021,” CEO and Co-Founder Vlad Tenev said in a note.

Total net revenue rose 35%, to $365 million, in the third quarter.

The trading platform was a huge beneficiary of the surge in retail trading during the pandemic as people, ensconced in the comfort of their homes took to selling and buying cryptos and equities like never before. It was a hit with the millennials and the young crowd trying their hand at cryptos. With public spaces and avenues of entertainment increasing in an economy reopening, that frenzy came off in July to September.

The craze for meme stocks which led stocks like GameStop (NYSE:) and AMC Entertainment (NYSE:) to climb by a factor of hundreds also fueled the platform’s growth. Those stocks lead mostly common lives now.

At $164 million, trading in options contributed to more 61% of the $267 million revenue Robinhood earned from transactions on the platform.

Crypto-based trading revenue climbed more than 10 times from a year earlier to $51 million, but was 78% off its second quarter level, Robinhood said. From contributing to more than half of the trading revenue in the second quarter, cryptos shared only 19% of it July through September.

Trading in Dogecoin – a token started as a joke and a pet of Tesla (NASDAQ:) CEO Elon Musk – made up 62% of Robinhood’s cryptocurrency transaction volume during July-September.

Equities trading revenue fell 27% from a year ago to $50 million.

Net loss of $1.32 billion was largely attributable to stock-based employee compensation in the wake of the IPO, Tenev said.

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