Robin Hood shares flat despite top and bottom line beats

Robinhood (HOOD) reported impressive second-quarter earnings, with EPS of $0.21, beating the consensus estimate of $0.16 by $0.05. Revenues surged 40.3% year-over-year to $682 million, surpassing the expected $640.39 million. This robust performance was driven by strong growth across various metrics, reflecting the company's ability to capitalize on market opportunities and expand its user base.

Funded customers increased by 1 million year-over-year to 24.2 million, while investment accounts rose by 1.4 million to 24.8 million. Assets under custody (AUC) saw a significant 57% increase year-over-year, reaching $139.7 billion. This growth was fueled by continued net deposits, which totaled $13.2 billion for the quarter, reflecting a 41% annualized growth rate relative to AUC at the end of Q1 2024. Over the past twelve months, net deposits amounted to $33 billion, a growth rate of 37% relative to AUC at the end of Q2 2023.

Transaction-based revenue increased by 69% to $327 million, driven by a 43% rise in options revenue and a staggering 161% spike in cryptocurrency revenue. Net interest revenue also grew by 22%, benefiting from higher securities lending activity and short-term interest rates. Monthly active users (MAU) increased by 9% year-over-year to 11.8 million, although this fell short of the FactSet estimate of 13.45 million. The average revenue per user (ARPU) saw a substantial 35% increase to $113.

Robinhood's premium subscription service, Robinhood Gold, experienced a 61% increase in subscribers, reaching 2 million. This growth reflects the company's ability to enhance its product offerings and attract more users to its platform. The company's strategic focus on cost discipline and product initiatives has been evident, as it continues to invest in new products, features, and international expansion, while maintaining efficient operations.

Looking ahead, Robinhood reiterated its full-year 2024 expense guidance, expecting GAAP total operating expenses and Non-GAAP combined Adjusted Operating Expenses and SBC to be in the range of $1.85 billion to $1.95 billion. The company is optimistic about better regulatory developments in 2024 and 2025, which could allow it to list more crypto tokens and products, including staking. Additionally, the acquisitions of Pluto Capital and Bitstamp are expected to accelerate Robinhood's advisory services and grow its international crypto volumes, respectively.

Despite the strong performance, Robinhood remains cautious about the outlook for retail investor appetite, given concerns of an equity market downturn and decelerating crypto volumes. The company experienced technical issues with its third-party ATS, BLUE OCEAN, during a high-demand period, leading to a temporary shutdown. However, Robinhood has implemented a testing and scaling plan to prevent future outages, and its 24-hour market has handled $30 billion in volumes since its launch.

Robinhood's stock rallied more than 7% in premarket trading following the earnings announcement. The company has been in a steep downtrend since mid-July but is up 34% in 2024 through Wednesday. Management remains positive about the company's growth prospects, driven by improvements in take rates for options and crypto, continued product development, and strategic acquisitions, positioning Robinhood for sustained long-term success.