Over 60% of Robinhood Clients Traded Crypto for the First Time in Q2

Robinhood is currently making more money from crypto trading than equities and options combined. While crypto revenue surged 4,560% from a year earlier, transaction revenue from equity was down 26.8% from 2Q20 and 61% from 1Q21, and for options, it was down 16.7% from 1Q21.

Robinhood Markets (HOOD) reported a 131% increase in its second-quarter revenue, having benefited from a surge in cryptocurrency trading on its platform.

Still, the company's shares dropped and are currently trading at $49.80 after it warned investors that this crypto boom-driven jump in revenue might not last.

“We expect seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts,” in the third quarter ended September 30, 2021, Robinhood said in a statement.

In its first earnings report as a publicly traded company, the online brokerage said revenue more than doubled to $565 million for the quarter ended June 30 compared to $244 million a year earlier.

Transaction-based revenue at $451 million formed the bulk of the investing app’s $565 million revenue in Q2.

And crypto revenue totaled $233 million in the second quarter, an increase of a whopping 4,560% from a year earlier. Crypto trading revenue was only $5 million a year ago.

A significant portion of this primarily came from Dogecoin (DOGE) alone, which accounted for 62% of cryptocurrency transaction-based revenue.

In the past year, crypto has grown to become 41%, from just 2% of Robinhood’s total revenue.

But even more interesting is the fact that over 60% of funded accounts traded crypto for the first time in Q2 as “Robinhood’s customers demonstrated significant interest in cryptocurrencies,” it said.

At this point, Robinhood is making more money from crypto trading than equities and options combined.

As a matter of fact, Robinhood’s transaction revenue from equity was down 26.8% from 2Q20 and 61% from 1Q21. As for options transaction revenue, down 16.7% from 1Q21 but still up 48.6% from 2Q20.

QoQ growth of average account size of the firm is flat at ~$4,500 but recorded an increase of 34.6% YoY while operating expenses climbed 169% YoY.

Despite this growth, Robinhood is yet to offer its users the options to move their crypto assets out of the platform. When asked about when the firm will provide crypto wallets, Chief Executive Officer Vlad Tenev said, “It’s something that our teams are working on,” adding they’re in particular demand among DOGE enthusiasts.

“The ability to deposit and withdraw cryptocurrencies is tricky to do with scale, and we want to make sure it’s done correctly and properly.”

Executives also said they would explore making more crypto assets available for trading, Round Up Investing, and offering retirement accounts.

“The heat is on for Robinhood to invest in crypto-trading products, including added crypto-wallet functionality and more coins to buy and trade, after the strong interest from users reflected in 2Q results,” noted Julie Chariell, Bloomberg Intelligence fintech industry analyst.

A large part of Robinhood's transactional revenue actually comes from a practice called payment for order flow (PFOF). In this practice, rental brokers send customers orders to wholesale brokers instead of exchanges for a slightly better execution price and payments from the wholesalers in return.

The US SEC is scrutinizing this practice over concerns that it is a potential conflict of interest. Brokers may be incentivized to maximize their own profit by not sending orders to places where customers would get the best execution.

But Robinhood doesn’t expect PFOF to be banned, but even if it does happen, it said, it can find other ways to generate revenue.

Robinhood’s funded accounts reached 22.5 million customers as of June 30, compared with about 9.8 million a year earlier. Monthly active users increased 109% to 21.3 million, from 10.2 million in Q2 of 2020, while assets under custody jumped 205% to $102 billion during the same period.

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