Robinhood Q2 preview: Where next for HOOD stock?

When will Robinhood release Q2 earnings?

Robinhood is scheduled to release second quarter earnings after US markets close on Wednesday August 3. A conference call will be held on the same day at 1400 PT, or 1700 ET.

Robinhood Q2 earnings consensus

Revenue is forecast to be 43% lower than last year in the second quarter at just $322.7 million, although its loss per share is expected to improve to $0.33 from $2.11. 

Adjusted Ebitda, which is Robinhood’s headline measure, is forecast to come in at a loss of $114.4 million. That compares to the $90 million profit booked the year before.

Robinhood Q2 earnings preview

Robinhood shares have found fresh lows in 2022 as the boom in trading activity seen last year continues to unwind. It is expected to have continued to lose appeal in the period and is forecast to lose another 430,000 users since the first quarter, with analysts looking for 15.5 million monthly active users at the end of June. That would also be down some 15.5% from a year ago.

The company has said user numbers are falling as those with smaller balances to trade tighten their budgets amid the uncertain environment, although larger customers have proved more resilient.

Cryptocurrencies have proven particularly popular at Robinhood, but it was an extremely tough quarter considering the price of bitcoin plunged 57% during the period, starting April at over $46,000 and ending June at less than $20,000. Today, it trades closer to $23,000. Plus, while financial markets have proven volatile this year, the selloff has injected caution as markets adapt to the downturn.

‘For most of our history, Robinhood has operated in a period of low interest rates, low inflation and rising markets. Our customers are now experiencing all three of these trends going in the opposite direction, perhaps for the first time in their lives. As a result, some are engaging with us less regularly and reducing their trading activities,’ said founder and CEO Vlad Tenev after the last quarterly results.

On a brighter note, the number of net cumulative funded accounts continues to grow, and churn has been reducing. This means Robinhood is still attracting new users and successfully encouraging them to deposit cash, but that fewer of them are deploying that cash in the current environment.

Wall Street anticipates net funded accounts will edge up 2% from last year to 22.9 million. However, that will mark a sharp slowdown from the 27% jump seen in the last quarter. Plus, average revenue per user has also fallen dramatically this year, with analysts expecting it to more than halve in the second quarter to $55.

Robinhood has been introducing a swathe of new products and services to help grow its importance with customers, and the hope is that this will wean itself of relying on cyclical day trading from retail traders. Robinhood makes the majority of its money through payment-for-order-flow. Although trading is largely free for users, Robinhood earns a spread on the trades that it funnels to large trading houses and brokers.

It has said that it believes its future is built around ‘long-term investing, spending and savings, helping customers move money faster, and opening up its crypto platform to customers internationally.’ Since March, Robinhood has unleashed everything from crypto wallets and extended hours trading to new banking services spanning a debit card to payroll direct deposits. Tax-advantaged accounts are among the next products to be launched. The more financial tools it can offer, the more likely users are to stick around and remain active.

It will take time for its new products to gain traction, which means the difficult macroeconomic conditions are likely to continue weighing on the business and stealing the headlines in the meantime. Robinhood has already had to take drastic action to adjust to the challenges, having laid off 9% of its workforce. With the topline shrinking, the need to keep control over costs will prove crucial in deciding how Robinhood’s bottom-line fares this year. Robinhood has already tightened its belt and said operating expenses will rise 2% to 5% in 2022, having originally forecast a 15% to 20% rise when it was still in hiring mode. Wall Street believes operating costs amounted to $642.5 million in the second quarter, down from the first quarter but still some 28% above last year’s figure.

The goal is to reach breakeven at the adjusted Ebitda level by the end of 2022. For now, markets remain wary that it can achieve its goal and forecast it will continue to report losses until the fourth quarter of 2022, when they believe it can eek out a tiny profit.

Where next for HOOD stock?

Robinhood celebrated a successful start to public life when it went public a year ago at $38 a share, having managed to climb as high as $85 within a week of its initial public offering. However, any jubilation was short-lived as the stock has steadily tumbled since then, and today the stock is worth just $8.86.

The stock has been gradually consolidating this year and the range has tightened considerably since it sank to an all-time low of $6.80 in June. Shares have found higher ground since then but has struggled to break above $9.50. These can be regarded as the initial levels to watch, with potential for the results this week to provide a catalyst to push shares out of this range. In the meantime, we could see shares continue to track the 50-day moving average, which has held as an initial floor during the last three sessions.

If it can find some momentum and push above $9.50 the stock can bring $11 into the crosshairs. The 15 brokers that cover Robinhood believe it can climb slightly higher with an average target price of $11.43. However, a consistent drop in average trading volumes suggests it could struggle to gain traction, with the 5-day average-volume-at-time just one-third of the 100-day average.

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