Analysts Warn Of Q3 Slowdown In Robinhood's Doge-Reliant Growth

Financial analysts are anticipating a significant Q3 slowdown for Robinhood Markets Inc (HOOD) amid the company’s disclosure about cryptocurrency’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-X) 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

Cryptocurrency 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.