What’s going on?

• Robinhood posted a disappointing first earnings update since its IPO.

What does this mean?

• In Q1/2021, Robinhood’s bank balance might have been boosted by meme stocks (like GameStop and AMC Entertainment). In Q2/2021, however, Robinhood’s revenue surged 131% thanks to crypto trading making up around 51%, which was a huge jump from 17% in Q1.
• Therefore, the future doesn’t seem to be so promising.
  • A significant portion of that trading was on dogecoin, which investors have sent down more than 50% from its May highs.
  • Summer tends to be a quiet period anyway, and crypto trading is likely to drop off in Q3.

Why should I care?

The bigger picture: When cash could show your value

• If cryptocurrency trading does slow down, it’ll impact Robinhood in either way that would reduce it’s DCF-calculated value:
  • reducing the amount of cash the company generates, or
  • pushing those cash flows into a later quarter.
• That might be why Robinhood’s shares initially fell 10% after the update.

Zooming out: The crypto upstream is also slowing down

• Nvidia – which reported better-than-expected revenue and profit – said sales of microchips used for crypto mining in Q2 were 30% lower than Nvidi had been expecting. That suggests there’ll be less enthusiasm for cryptocurrencies themselves, at least in the near term.
• That prové that Robinhood is right to be nervous about the crypto market

Content source: Finimize (2021) A Not-So-Warm Welcome. Available at: https://www.finimize.com/wp/news/a-not-so-warm-welcome/ [Accessed on Aug 21, 2021]