Robinhood warned in its updated prospectus that the brokerage could see a slowdown in its epic increase because the retail trading increase cools.
“We assume our revenue for the 3 months finishing September 30, 2021, to be decrease, in comparison to the three months ended June 30, 2021, due to reduced tiers of trading interest relative to the file highs in trading interest, specifically in cryptocurrencies, for the duration of the three months ended June 30, 2021, and predicted seasonality,” Robinhood said in an amended prospectus released remaining week.
Robinhood, which offers fairness, cryptocurrency and alternatives buying and selling, as well as cash management bills, advantages from more speculative trading practices from its clients. Options buying and selling makes up about 38% of sales, whilst crypto is 17% of sales. Plus, margin and stock lending trading ranges had been expanded in 2021.
“Since the lion’s proportion of Robinhood’s revenue is derived from transactional activity there is a threat that a market downturn or maybe less turnover may want to lead to top-line pressures,” said Peter Hobson, senior analyst at Third Bridge. “The last time there was comparable gangbusters retail trading growth was in early 2000, which then saw a fabric decline in retail buying and selling activity after the pop of the dot-com bubble.”
Robinhood additionally said it anticipates the growth charge of new clients will be decrease inside the third quarter of 2021 from second zone “due to the fantastically strong interest in trading, particularly in cryptocurrencies, we skilled within the 3 months ended June 30, 2021 and seasonality in general buying and selling activities,” the filing stated.
“It is doubtful to us whether the new influx of clients at HOOD will remain repeat buyers or might behave in another way from prior cohorts of users. Approximately 60% of funded debts on Robinhood were opened inside the final twelve months, and a full-size majority of them are first-time traders,” stated MKM Partners analyst Rohit Kulkarni.
Another fundamental threat to Robinhood’s valuation would be regulatory adjustments to the company’s largest sales source, payment-for-order glide, or the money-brokerage firms get hold of for guiding clients’ trades to market makers. Payment-for-order go with the flow is a debatable exercise that has garnered attention from the Financial Industry Regulatory Authority and Main Street.
In the primary area of 2021, Robinhood observed itself within the center of a firestorm amid an epic brief squeeze in GameStop, which was partially fueled by Reddit-pushed retail traders. At the peak of the so-called meme stocks’ surge, Robinhood constrained buying and selling of positive securities because of improved capital requirements from clearing homes. Robinhood raised more than $3.4 billion in some days to shore up its stability sheet.