News
Robinhood’s Cryptocurrency Business Drives Huge Profits
By Sri Hari NS and Niket Nishant
(Reuters) – Online brokerage Robinhood Markets topped first-quarter profit estimates on Wednesday, as robust cryptocurrency trading volumes and rate hikes boosted net interest income.
The approval of the first spot bitcoin ETFs in the US in January boosted sentiment towards the cryptocurrency sector, which had been hit by several high-profile collapses over the past two years.
The company, however, revealed earlier this week that its US cryptocurrency trading division received a so-called Wells Notice from the SEC over tokens traded on its platform.
The notice is issued when the regulator intends to take enforcement action against a company.
“The Wells Notice clouds the future of this income stream,” said Lauren Ashcraft, financial services analyst at Emarketer.
But companies generally have the opportunity to respond to a Wells Notice and correct situations, so Robinhood “still potentially has the ability to maintain this significant source of revenue,” he added.
Robinhood said it was disappointed by the notice but will dispute the SEC’s claims and, if necessary, fight the regulator in court.
“We manage our cryptocurrency business very carefully. We have been very selective about the coins we offer and have not offered services that have been criticized by the SEC,” said CFO Jason Warnick.
STRONG TRADES IN OPTIONS AND STOCKS
Stock and options trading also held up, as hopes of a soft landing encouraged retail traders to re-enter the market, allowing the Menlo Park, California-based company to rake in 59% higher transaction-based revenue %.
The momentum continued into the second quarter, despite some uncertainty about the timing of rate cuts by the Federal Reserve, Warnick said.
Net interest income jumped 22% to $254 million, helped by tightening Federal Reserve policy that allowed companies to earn more from their bond deposits and investments.
The rate increases also allow brokerages like Robinhood, which allow traders to borrow against their investments, to charge higher interest on those loans.
According to LSEG, the company reported profit of $157 million or 18 cents per share for the three months ended March 31, compared to expectations of 6 cents per share. It had reported a loss of $511 million or 57 cents per share in the same quarter last year.
Net revenues increased 40% to $618 million. Shares rose nearly 3% after the bell.
(Reporting by Sri Hari NS and Niket Nishant in Bangalore; Editing by Tasim Zahid)