Robinhood’s second quarter to benefit from meme stock revival, crypto trading

By Manya Saini

(Reuters) – Wall Street expects Robinhood’s revenue to hit record levels in the second quarter as retail investors flock to its commission-free app to trade so-called “meme stocks” and cryptocurrencies.

The return of influential online figure Keith Gill, known as “Roaring Kitty,” has reignited investor interest in retail favorites like GameStop and lured small investors back to Robinhood.

The company’s stock trading volume increased by 82 percent in April and 76 percent in May compared to the previous year.

“I expect the company to grow in a way that is correlated and leveraged by the equity and crypto markets,” said Michael Ashley Schulman, partner and CIO at Running Point Capital Advisors.

The company’s popularity was immortalized in the 2021 retail trading saga, when it became the platform of choice for people to invest in meme stocks during pandemic-era lockdowns.

The 11-year-old trading app is aiming to grow and transform into a full-fledged financial services provider.

“The underlying story has been improving recently with healthy growth in deposits, margin balances, options/stocks,” Citigroup analysts said.

Meanwhile, signs of easing regulatory restrictions following the U.S. Securities and Exchange Commission’s approval of the first-ever Bitcoin exchange-traded funds also supported sentiment in crypto markets.

Undeterred by regulatory hurdles and intense volatility in the industry, the company believes cryptocurrencies will be the next big growth avenue.

While cryptocurrency transaction volume increased by 238 percent in May, a 173 percent increase was recorded in April compared to the previous year.

While Robinhood has benefited from intense trading activity, analysts warn that these levels may not be sustainable in the long term.

“Things like Keith Gill’s return to social media and crypto ETF enthusiasm appear to be trading swings and may not be sustainable trends that analysts can factor into their financial models for Robinhood,” Schulman said.

The company is expected to report results after markets close on Wednesday.

FUNDAMENTALS

* Revenue is expected to rise 32% to $643.34 million in the second quarter, with transaction-based revenues up 51%, according to LSEG data.

* Analysts expect Robinhood’s second-quarter earnings per share to be 15 cents, compared with 3 cents a year earlier.

WALL STREET FEELING

* Six of 17 brokerages rate the stock as “buy” or higher, nine as “hold” and two as “sell”

STOCK PERFORMANCE

(Reporting by Manya Saini in Bengaluru; Editing by Arun Koyyur)