Amongst the multitude of pandemic trends, a drastic increase in retail trading followed working from home habits and an increase in disposable income. Retail brokerages reported strong growth over the pandemic, but like most of 2021’s stock picks; value is quickly diminishing as the temporary trends subside. Robinhood (NASDAQ: HOOD) has lost nearly 75% of its value since its IPO as market uncertainty and a post-pandemic user pullback weighs on its foundations.
Meme stock crazes and crypto bull runs were key drivers of user growth on Robinhood, but the company’s revenue has dropped 43% from Q121 as the pandemic trading fever starts to dwindle. Revenue came in at $299M, heavily shy of the Street consensus of around $356M; also coming in below the company’s own guidance.
There are multiple other factors involved with Robinhood’s slow depreciation; including looming market uncertainty, rising interest rates shining a troublesome light on high-strung company valuations, a lack of financial stimulus and an everall return to pre-pandemic routine; meaning users simply might not have the time or money to spend of the platform, especially given the current economic climate.
Roinhood announced it is attempting to grapple with slowing growth by trimming unnecessary expenditure; involving laying off approximately 9% of its total staff. The bear market hasn’t exactly been alluring for new retail traders, and hence is reflected in the profits of brokerages like Robinhood.
Its not surprising that Robinhood hasn’t been able to maintain an extraordinary level of growth. Pandemic trends are effectively anomalies in the wider growth environment, but as the company only went public in mid-2021, investors have no financial metrics to cross-reference.
Although revenue per user dropped by 62% in Q1, monthly active users have remained high for the broker, dropping just 10% from the extraordinary period of Q121. This simply means that although users are spending less on the platform, they aren’t necessarily being repelled from the platform, hence the company needs to look to enticing further spending by increasing offerings and novel products.
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Oliver is a financial writer and analyst specialising in the US stock market, with years of personal experience in understanding micro/macroeconomic structures, market trends and fundamental analysis.