Markets Inc. hasn’t stolen back its momentum, but it might be getting there.
Some notable things happened in Robinhood’s results in the second quarter, announced in early August. No, it wasn’t a jump in trading. But average revenue per user ticked higher for the first time since the start of the meme-stock frenzy in the first quarter of 2021, from $53 the prior quarter to $56. Notably, that was helped by a big increase in non-transaction revenue: Net interest income grew by more than a third from the first to second quarter, to $74 million, even as transaction-based revenues dipped from $218 million to $202 million.
Though customer trading remains the bulk of Robinhood’s revenue, the upswing in interest rates is helping show some progress on what the firm can do while many small traders are on the sidelines. Interest earned on corporate cash and investments and segregated customer cash and securities went from $2 million in the first quarter to $16 million. Margin interest revenue also rose sequentially, even as balances dipped lower. Securities lending income didn’t rise, but the company just began rolling out its expanded program for customers to earn from lending out their stock.
A big asset for the company is its cash pile. Robinhood said that interest-earning assets were $16 billion at the end of the second quarter. That cash hoard is partly a legacy of the time when Robinhood had to scramble to meet its obligations in early 2021 during the meme-stock surge. But the company says it now uses very little of its corporate cash to run the business on a typical day. It has also swept up a balance of over $2 billion in customer cash as of the second quarter. Robinhood estimated it is realizing about $40 million of additional annualized revenue for every quarter-point increase in interest rates by the Federal Reserve.
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Higher rates are also giving Robinhood the opportunity to retain and attract customer cash. Even though net cumulative funded accounts grew just slightly sequentially, to 22.9 million, net deposits grew at a 22% annualized rate over the second quarter. Cash sorting among brokerage customers who are seeking out the highest rate can be a risk and drive up funding costs—but it is also an opportunity for the likes of Robinhood to gather cash by offering attractive rates, shifting more of its business away from dependence on high trading levels.
None of this is to say that Robinhood is poised for a sudden boom. The company is in the process of layoffs and its single-biggest revenue maker—options trading—is still declining. But it is an indication that Robinhood at least has some of the right kind of momentum as it aims to turn positive on at least its adjusted earnings before interest, taxes, depreciation and amortization by the end of the year.
That would be an achievement that at least might embolden investors inclined to see the long-term potential in Robinhood as the digital brokerage for the next generation. Its shares are up over 20% so far this month, but that is well short of the 40%-plus jumps in other once-highflying fintech darlings such as Coinbase Global and Affirm. Another quarter with similar trends might help close the enthusiasm gap.
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