So, is anyone actually trading stocks on the world’s largest stocks trading app?
A quick glance at Robinhood Markets Inc’s (NASDAQ:HOOD) second quarter numbers reveal why I pose this question.
Of the US$451mln of transaction-based revenues generated in the three months ended June 30, US$233mln came from buying and selling cryptocurrencies on customers’ behalf. That’s 51% of the total.
A further US$165mln, or 36%, came from options trading activity.
It generated just US$52mln from plain vanilla equities, which is 11.5% of transaction-based revenues.
The superficial story is one of changing tastes among American investors with the millennials and Gen Zs eschewing former 401k staples such as GE and GM for the lure of gravity-defying alternatives to fiat currencies.
However, you scrape the surface and you realise that with crypto comes volatility, particularly if your fortunes are aligned to one of the more marginal names.
Thus, it was and is for Robinhood, which was forced to accompany a good news story of a year-on-year doubling in revenues with a warning – and one that wiped as much US$7bn from the value of the business on a turbulent day of trading Wednesday.
The issue was Dogecoin, the meme-inspired electronic currency, that was responsible for 34% of all crypto traded on the platform.
“If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected,” Robinhood said in a statement to the market.
That’s a big ouch.
Not just that, it may reveal a fundamental flaw in the business model.
Success for Robinhood most likely relies on it attracting stable, long-term investors (rather than day traders and stock market ‘gamers’).
Yet the gamers and the traders seem to be the people that are currently in the ascendant.
A vox pop by the Financial Times elicited the following comments that sum up the way the new generation of investors view the app.
“The money I have on Robinhood I view as ‘whatever happens, happens’,” said Nick Hogan, a Los Angeles entertainment manager who has long traded on Robinhood. “If [my investment] crashes, it doesn’t affect me that much. It’s like money you would use at a casino.”
A reset of the American stock and crypto markets that leads to wholesale losses may change that mentality.
It may also act as an arrow to the rump (if not the heart) of Robinhood.
In other words, there are some painful times ahead of both the users of and investors in the app – particularly at the current heady valuations.