Amid Robinhood’s financial woes, finance YouTube channel host and retail trader Matt Kohrs believes the outlook for the company’s stock is bleak.
“At least from the retail business community, of which I’m happily a member, I don’t think sentiment has changed, I mean, it’s dumpster fire of a situation,” Kohrs told Yahoo Finance Live. “I mean, in 2021, they managed to throw $3.7 billion in a pit, douse it in gasoline, and set it on fire. And it looks like they’re not really changing course, because we’re on 2022 Kicking.”
Cohors joined Yahoo Finance Live to discuss Robinhood’s quarterly earnings and why retailers are leaving the platform. The company reported a higher-than-expected loss for the quarter ended March 31, as total net revenue declined 43% year over year to $299 million. Robinhood’s revenue in the first quarter of 2022 reported a fifth consecutive quarterly decline, with a total net loss of $392 million, or $0.45 per diluted share.
Monthly active users also fell 10% year over year — a big hit to Robinhood’s pay to order flow (PFOF) business model, for which the online brokerage has received criticism in the past. Charlie Munger, the vice president of Berkshire Hathaway (BRK-A, BRK-B), who is a vocal critic of the PFOF model, likened Robinhood’s financial calculations to a “God-seeking justice”.
“I think there’s definitely a leap now,” Kohrs said. “People are leaving Robinhood for other commission-free brokerages. But I think there are two major ways to look at it. If we look at the classic fundamental analysis of what’s going on, their monthly active users in the quarter were approx. 1.4 million is down, and on top of that, it’s worse because they’re also getting less money per user – a drop in revenue.
Kohrs noted that Robinhood’s perception by the retail business community is central to its userability and, as a result, how its stock performs. And right now, he said, retailers see the platform as “a little closer to the Sheriff of Nottingham” – the unjust tyrant in Robin Hood’s story – rather than the protagonist himself.
“There’s definitely been an escape from Robinhood,” he said. “One of the ones I know that is becoming very popular is the public one. This is another commission-free brokerage. But the difference is that there is no payment for order flow. As the retail trader refers to the market structure I am learning more and more about what’s going on… understanding that they are happy to pay a commission [they’re] Paying for transparency, or they’re going to people who don’t engage in paying for the order flow at all.”
Robinhood and Cryptocurrency
Even in the case of its cryptocurrency exchange offerings, Robinhood may be falling behind the competition. The company reported in its latest earnings report that its cryptocurrency trading revenue declined 39% year over year to $54 million, compared to $88 million in Q1 2021.
And although Robinhood Crypto added the ability to buy and sell popular cryptocurrencies like Shiba Inu (SHIB-USD), Solana (SOL-USD), Compound (COMP1-USD), and Polygon (MATIC-USD) in mid-April, Cohors believes it may be too little, too late.
“So even though they are trying to rebrand and really focus on crypto, it looks like it’s just slowing down a little bit, like I said, [was] $3.7 billion last year,” he said. “They already burned over $300 billion dollars this first quarter. And really, the sentiment of it, I just don’t see a lot of people. In terms of equities, options and crypto, I think different brokerages and There are exchanges that are more trustworthy than Robinhood.
Thomas Hum is a writer at Yahoo Finance. follow him on twitter @thomashumTV
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