The release of Robinhood Hood

Short Selling Didn’t Help Robinhood HOOD Much -2.82%

Stock prices beleaguered by the markets. But it could be a key for the company to find much-needed revenue growth.

Even as the stock languishes, down more than 40% so far in 2022, Robinhood is busy launching new products. So far this year, it has introduced a new debit card and extended its trading hours. It also completed the rollout of its cryptocurrency wallet and listed the popular Shiba Inu coin while launching its overseas expansion by announcing the acquisition of a UK crypto app.

These are the kinds of moves that investors have been hoping could fuel a new wave of interest as the trading mania of the past year continues to fade.

But while Robinhood may be building, there are still plenty of new accounts to come. Net cumulative funded accounts increased incrementally to 22.8 million from 22.7 million in the first quarter. Monthly active users have decreased. Total net revenue fell about 18% from the fourth to the first quarter and more than 40% from a year ago.

Many of these products are still in their infancy, so it’s too early to pass judgment on them. But one measuring stick may be the most critical for now: average revenue per user, or ARPU. That dropped to just $53 in the first quarter. Robinhood told analysts on Thursday that as part of a push to positive adjusted earnings before interest, taxes, depreciation and amortization by the end of the year, it needs to bring ARPU to around $80. The company is also cutting costs, notably through an announced reduction of around 9% of full-time staff.

So where does that extra ARPU of around $30 come from? Unless there is an increase in activity or account, these may not be crypto enhancements at this time. Managing Director Vlad Tenev told analysts that “at this point, on a stand-alone basis, we don’t actually see wallets as a source of revenue.”

Instead, Robinhood could see a significant increase in user revenue through a passive activity: securities lending. So-called fully paid securities lending allows clients to lend their assets, sometimes to institutions that want to use them for short selling, to generate additional income. The more demand for shares to borrow, the more Robinhood and its customers can earn.

Robinhood says the offering, which it recently started rolling out to a small group of customers, has the potential to eventually add around one to two times more revenue than its current margined securities lending business. . This alone could add several dollars to ARPU, even if users weren’t trading or investing more than they do today.

Another ARPU factor cited by the company is continuous improvement that will benefit advanced users. Notably, options trading, including by more sophisticated traders, has been Robinhood’s most stable generator of transaction revenue – so anything that can better monetize or engage options traders could provide a boost. relatively predictable. Options trading revenue of $127 million in the first quarter was still two-thirds of the all-time high of the first quarter of 2021. In contrast, equity and crypto revenue were at about a quarter of their quarterly highs respective. .

Then there are rising interest rates and the benefits of good old cash. Higher rates can be bad news for crypto prices and high-flying stocks, but they can be good for brokers in many ways. Higher rates may increase Robinhood’s ability to generate interest income from cash balances and result in higher margin loan pricing. Robinhood can also attract more of a client’s assets with high returns on uninvested money, or earn by monetizing instant withdrawals if clients are in a rush to move money.

Securities lending and cash strategies might not have been what many people had in mind when Robinhood went public amid a retail bonanza. But right now, these seemingly boring things may be some of the company’s most exciting opportunities to turn around its beleaguered stock.

Hobby investors took the stock market by storm a year ago, buying shares of memes like GameStop and AMC Entertainment. Many remember them as a revolution against Wall Street, but in the end they largely lined only the pockets of the big financial corporations. The WSJ’s Dion Rabouin explains. Illustration: Sebastian Vega (Video from 01/28/22)

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Sara R. Cicero