Financial analysts are anticipating a significant Q3 slowdown for Robinhood Markets Inc HOOD amid the company’s disclosure about crypto’s contribution to its second-quarter financial earnings.
What Happened: In an investor note, Wolfe Research’s analyst Steven Chubak has warned to “beware of Dogecoin DOGE/USD given its outsized contribution. As a result, expectations for a third third-quarter slowdown could be much more acute than many investors were anticipating.”
Chubak mentioned Dogecoin’s contributions to the company’s revenue, from 6% in Q1 2021 to the 26% mark by Q2.
“Trading volumes for Dogecoin have dropped by roughly 78% in Q3 and are now tracking below Q1 levels,” he added.
The company has said seasonal issues and lower trading activity will impact third-quarter results.
David Trainer, Chief Executive Officer of research firm New Constructs, said, “Robinhood’s guidance that trading activity and account growth may slow is a major warning to investors. The company’s performance will “be nowhere near what’s required to justify the stock price.”
Analysts believe retail investors will be less eager to take risks in a down market, potentially hurting Robinhood’s bottom line.
Why It Matters: Crypto trading represented 41% of Robinhood’s revenue, and more than 60% of the app’s funded accounts traded crypto in the quarter.
Robinhood posted net revenue of $565 million for the quarter ending June 30 compared with $244 million in 2020. The 131% gain is above the mean analyst estimate of $521.8 million.
The company generated $233 million from crypto trading services for Q2 2021, up from $5 million for the entirety of 2020.
The company’s monthly active users increased 109% to 21.3 million, compared to 10.2 million in the second quarter of 2020. In addition, assets under custody increased 205% to $102 billion, compared with $33 billion in 2020.
Robinhood said trading in Dogecoin made up 62% of its crypto revenue in Q2.
Earlier this year, Robinhood angered some investors and U.S. lawmakers when it restricted trading in some popular stocks following a 10-fold rise in deposit requirements.
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