📉 Will Robinhood Go Down As Trash Or Treasure?

Retail shares battered post Target, Walmart earnings.

Hey Global Investor! Here’s what you need to know before the US markets open.

Market Snapshot 📈

S&P 500 (Wednesday’s Close) 3,923.68 -165.17 (4.04%)

NASDAQ (Wednesday’s Close) 11,418.15 -566.37 (4.73%)

FTSE 100 (4 PM IST) 7,253.76 -184.33 (2.48%)

NIFTY 50 (Today’s Close) 15,809.40 -430.90 (2.65%)

USDINR (4 PM IST) 77.71 (1 Year +6.27%)

🔥 Top Movers

DLO +21.45%
AGYS +16.78%
MX +12.75%

TGT -24.97%
TGI -20.48%
DLTR -16.22%

📉 Robinhood: Trash Vs Treasure?

What a 30-year-old Crypto-billionaire calls an “attractive investment” is the same stock a veteran investor calls “disgusting.” The stock in question is Robinhood Markets Inc. (HOOD) which is 90% down from its peak. There are plenty of issues on its plate, and that plate has only grown bigger.

Castle In The Cloud?

Robinhood has seen the zenith and the nadir in a span of 10 months. It became the app for Gen Z and millennials that helped them jump headlong into the stock market. The euphoria surrounding its IPO was that investors saw their holdings double in just a few days.

Charlie Munger, the nonagenarian Vice-Chairman of Berkshire Hathaway, wouldn’t have any of it. He Robinhood to “racetrack betting” and that it was wildly speculative. Robinhood brushed that comment aside, saying it’s akin to criticizing an entirely new generation of investors.

The Munger interview was as close to a foreboding if there was one. Robinhood’s shares jumped to $85 from the IPO price of $38. Unfortunately, before investors could even celebrate their returns, the castle in the cloud came crashing down to Terra Firma.

Shares are now down 90% from that $85 peak; regulators continue to be on the company’s trail; users are deserting the platform and are spending less than ever while transacting on Robinhood. Robinhood’s revenue shrank, and losses widened for the most recent quarter.

Key Highlights From Q1 2022:

  • Revenue: $299M Vs $355.8M expected
  • Loss Per Share: $0.45 Vs $0.36 expected
  • ARPU: $53 Vs $137 Y-o-Y and $64 Q-o-Q

Revenue declined for the third straight quarter. Losses may have narrowed to $392M from $1.4B during the same period last year, but the company’s Monthly Active Users (MAUs) fell to 15.9M from 17.7M during the same period last year. MAUs declined for the fourth straight quarter.

Revenue from crypto trading stood at a paltry $54M in Q1, down from $233M during the same period last year. However, the figure was higher than the $36M revenue from equities trading. Last month, the company rolled out crypto wallets and enabled support for the Lightning Network, an independent service designed for faster and cheaper Bitcoin payments.

Operating expenses jumped 50% from last year to $690M as the company continues to expand its business. Robinhood laid off 9% of its full-time workers last week. The company will stop providing revenue guidance. Why? Q2 2021 was when its top line peaked at $565M. Q2 2022 will compare to that year-ago base, which will not offer a flattering perspective no matter how you look.

Robinhood’s Robinhood!

Munger continued to linger when he recently termed Robinhood’s collapse as “pretty obvious and disgusting” and added the stinger, “God is getting just.”

Enter Sam Bankman-Fried, the founder of cryptocurrency exchange FTX. He is estimated to be worth $21B today, despite the rout in cryptocurrencies. Bankman-Fried, through his Emergent Fidelity Technologies Ltd., has acquired shares worth $648M at an average price of $11.52 apiece.

Bankman-Fried was quick to clarify he made a move only because he found it an attractive investment and that he doesn’t plan to do anything that alters the current control structures in the company. So Munger’s trash became Sam Bankman-Fried’s treasure.

This is an unexpected shot in the arm for Robinhood, which is positioning itself as a competitor to Coinbase. In this context, last month, the company acquired London-based Ziglu, a fintech app that allows users to trade Bitcoin and other cryptos. This week, it declared its users would have custody of their cryptocurrencies and Non-Fungible Tokens (NFTs) in a separate, standalone app.

For now, Sam Bankman-Fried has emerged as a modern-day Robinhood. Robinhood can only hope he stays for good. And that he doesn’t take the U-turn that Bill Ackman did in the case of Netflix. What Robinhood does need a U-turn on is its falling topline, declining users, and all-time low spending on the platform!

Market Reaction
HOOD ended at $9.73, down 3.28%.

Company Snapshot 📈

HOOD $9.73 -0.33 (3.28%)

Analyst Ratings (15 Analysts) BUY 33%  HOLD 47%  SELL 20%

Newsworthy 📰

Inflation Pinch: Bath & Body Works shares fall as retailer cuts profit outlook due to inflation (BBWI -8.64%)

Worst Day In 35 Years: Target shares sink 25% as high costs, inventory woes hit profits (TGT -24.93%)

Regulatory Lash: Tencent posts steepest profit decline since going public (TCEHY -6.97%)

Jibe: Elon Musk calls ESG “An Outrageous Scam” after Tesla is removed from the index (TSLA -6.80%)

Later Today 🕒

  • Kohl’s Corp. Earnings (KSS)
  • Palo Alto Networks Inc. Earnings (PANW)
  • Applied Materials Inc. Earnings (AMAT)
  • BJ’s Wholesale Club Holdings Inc. Earnings (BJ)
  • Lufax Holdings Ltd. Earnings (LU)
  • Ross Stores Inc. Earnings (ROST)
  • 6:00 PM IST: Initial Jobless Claims
  • 7:30 PM IST: Leading Economic Indicators

Today’s Fun Fact

The graphic at the end of Walmart’s logo is a “spark”

Disclaimer: The content of this article has been created and published by Winvesta India Technologies Pvt. Ltd., in order to ease the reader’s understanding of the subject matter. The information and/or content (collectively “Information”) provided herein is general information sourced through various news reports and does not constitute a research report or a research analysis. The Information is not intended to offer advice, target or solicit any particular customer or group of customers to buy or sell securities. 

Winvesta does not render any research or advisory services and provides a more detailed description of its services on its website and mobile application along with the terms and conditions published therein from time to time. While reasonable care has been exercised to ensure that the Information is adequate and reliable, no representation is made by Winvesta as to its accuracy or completeness and Winvesta, its affiliates, subsidiaries and employees accept no liability of whatsoever nature for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this Information. Neither Winvesta nor any of its affiliates are acting as an investment adviser, research analyst or in any other fiduciary capacity. Accordingly, reader’s are expected to undertake their own due diligence in consultation with their own advisors and are advised not to solely rely on the Information. Any such reliance shall be at the reader’s own risk. 

All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. There is always the potential of losing money when you invest in securities, or other financial products. Investors should consider their investment objectives and risks carefully before investing.

Start Building Your Global Portfolio Today

Download Winvesta App now to Get Started