BIC’s Video News Show: Robinhood IPO

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In Brief
  • Robinhood just had an IPO and experienced spectacular growth in terms of new users and revenue.

  • More than 60% of Robinhood's funded accounts traded in crypto during the quarter.

  • But Robinhood says that "seasonal headwinds," will lower industry-wide trading activity and push revenue and new accounts lower in the third quarter.

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In this episode of the BeInCrypto video news show, host Jessica Walker takes a look at Robinhood. 

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The company just had an IPO and experienced spectacular growth in terms of new users and revenue. They definitely made the most of the meme stock phenomenon and the hype around Dogecoin and Bitcoin. But what are they more focused on, democratizing access to the stock market and meme stocks, or crypto, where they’ll do battle with Coinbase and Binance?

Crypto windfall

Robinhood’s second-quarter earnings report late Wednesday revealed its reliance on cryptocurrency trades. This highlights the benefits and potential pitfalls of dealing in this emerging asset class. The trading platform’s cryptocurrency-related revenues exploded during the quarter. The company logged $233 million in such revenue, compared to just $5 million a year ago. 

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More than 60% of Robinhood’s funded accounts traded in crypto during the quarter. The period marked a larger portion of new customers making their first trade in crypto rather than equities, Robinhood said. Meme-based cryptocurrency Dogecoin made up 62% of Robinhood’s crypto trading volume during the quarter and a large portion of sales. The revenue from crypto trades dwarfed the amount from stock trades, which fell 26% to just $52 million.

Crypto wallet

Similar to cryptocurrency exchange Coinbase, Robinhood is also putting more focus on adding new crypto products. “We’re working on rolling out new crypto features, such as more coins, recurring investments, the ability to deposit and withdraw your crypto,” CEO Vlad Tenev said on Robinhood’s earnings call. “We’re excited about the future of our crypto product.”

Tenev also noted that the company had to expand its staff to match the rise in crypto enthusiasm. He said Robinhood was working on providing access to a crypto wallet for the platform. But he said there were challenges that would come with rolling one out. “Of course, offering crypto wallets and the ability to deposit and withdraw our cryptocurrencies is tricky to do at scale,” he said. “We want to make sure it’s done correctly and properly.”

Dip after spike?

Robinhood’s second-quarter results overall beat expectations. But Robinhood says that “seasonal headwinds,” will lower industry-wide trading activity and push revenue and new accounts lower in the third quarter. 

Management says the volatility in cryptocurrencies made forecasting difficult. DOGE volumes are down ~80% on a quarterly basis, and app downloads are also down ~80% versus the year-to-date pace.

Competition

Some observers have questioned whether the pandemic-induced retail trading boom would hold up after trading restrictions angered some Robinhood traders earlier this year, and the economy’s reopening gives people more to do.

Critics say Robinhood’s crypto trading capabilities are not a reliable growth driver for its future because there is too much competition in crypto trading. PayPal, Square and Coinbase have all become popular among US consumers and are looking to expand their services in the coming years.

Recap

Still, even with the unpredictable movements in the price of Bitcoin, Robinhood said market turbulence was on its side. Robinhood makes money in crypto by routing orders to market makers that the company says offer “competitive pricing” and taking a percentage of the order value. Overall, crypto assets on the platform almost doubled in the second quarter to $22.7 billion from $11.6 billion a quarter earlier and $3.5 billion at the end of 2020.

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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage. He can best be described as an optimistic center-left skeptic.

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