Robinhood: Assessing Fourth-Quarter Earnings

Robinhood is set to report its fourth-quarter earnings after the close on Tuesday. Investors are eagerly awaiting the results, hoping for any signs of a rebound among retail traders.

Based on analysts' estimates from FactSet, the online brokerage is projected to report a loss of a penny per share for the fourth quarter, following Generally Accepted Accounting Principles (GAAP), with revenue expected to reach $455 million. A year ago, Robinhood reported a loss of 19 cents per share on revenue of $380 million.

Since its initial public offering in July 2021, Robinhood has faced several challenges. Although it was profitable in 2020 prior to going public, the company experienced significant losses in the first quarter of 2021 due to fundraising-related issues surrounding the GameStop trading frenzy. Since then, there has been only one instance of positive income—a 3-cent per-share profit in the second quarter of 2023.

Additionally, Robinhood's stock performance has been underwhelming. Starting trading at $38, the shares have plummeted by 68% to approximately $12. Year-to-date, the stock has dropped by 5.7%.

The decline in Robinhood's revenue can be attributed to diminishing trading volume and increased competition. After five consecutive quarters of growth, sales took a hit in the third quarter of last year. This decline was reflected by a reduction in monthly active users, dropping to 10.3 million, as well as a decrease in average revenue per user.

However, some analysts believe there may be signs of a reversal in these challenging trends. The likelihood of interest rate cuts by the Federal Reserve and potential gains in the stock market could entice retail investors back to the platform. Furthermore, Robinhood expanded into the U.K. towards the end of last year and introduced a pass-through charge on options contracts, which may boost earnings.

According to FactSet, analysts anticipate Robinhood to return to profitability in the first quarter of this year.

In a research note last month, Mizuho analyst Dan Dolev expressed optimism about Robinhood's prospects, stating, "We believe that the combination of strong execution, adoption of new products, expansion into the U.K., and potential uplift to profits due to high operating leverage could continue HOOD's strong momentum into 2024." Dolev currently holds a Buy rating on Robinhood stock with a $15 target.