After Earnings Slump, Cautious Traders Should Eye $40 for Robinhood

With the recently released, highly anticipated second-quarter data report, traders had a chance to get to know zero-commission investing platform Robinhood (NASDAQ:HOOD) a little bit better. However, after “looking under the hood” of the company, some folks decided to dump their shares of HOOD stock.

Robinhood stocks: app logo seen on smartphone on US dollar banknotes
Source: mundissima /

Thankfully, InvestorPlace contributor William White was hot on the trail of this explosive story. I highly recommend checking out his article on 10 reasons Robinhood shares took a dive post-earnings.

What I learned from White’s report is that Robinhood’s overall fiscal picture is mixed, at best. Still, I’ll grant that there are some reasons to own HOOD stock now.

Regardless of anyone’s perspective on Robinhood, there’s no denying that the company has altered the trading landscape as we know it. Thus, whether you’re bullish or bearish on the stock, it’s practically impossible to ignore Robinhood in 2021.

A Closer Look at HOOD Stock

Let’s review what we know about HOOD stock, so far. On July 29, Robinhood priced its shares for the public at $38, at the lower end of the expected range.

On that first day of trading, the stock fell 8%, disappointing some long-leaning investors. Moreover, the share price made little progress during the next couple of days.

The next thing you know, on Aug. 4, HOOD stock took a moon shot. With that, a Reuters headline announced, “Robinhood surges 65% on Reddit buzz.”

I’m not 100% certain that anyone can prove Reddit users were responsible for that day’s rally.

It’s certainly possible, though – and ironic, since many of those social-media users are probably also users of Robinhood’s trading platform.

Still, after touching a high point of $85, HOOD stock drifted lower during the next two weeks.

Then came the big day – Aug. 19, earnings release day – and the stock was down 8% by the middle of the trading session. What happened?

Bad News Bears

Just to get the most painful part over with, I’ll start off with the negative developments from Robinhood’s second-quarter earnings results.

Reportedly, the company incurred a net loss of $502 million, which equates to $2.16 per share (diluted).

That’s definitely a big miss compared to Wall Street’s expectation of a quarterly loss of 15 cents per share.

It’s also significantly worse than the net income of $58 million, or 9 cents per diluted share, that Robinhood recorded during the second quarter of 2020.

Furthermore, the company posted average revenues per user (ARPU) of $112 for 2021’s second quarter. That figure slightly trails the $115 reported in the year-ago quarter.

Time to Re-focus?

So, there’s some fodder for the bears in the data. Yet, the story is far from finished, and there are tidbits for the Robinhood bulls to enjoy.

In terms of total net revenues, the company really knocked it out of the park with a 131% year-over-year increase to $565 million.

We’re painting a odd picture here, if you think about it.

Somehow, Robinhood has been generating strong revenues, but not converting all of that capital inflow into positive net income.

In any case, when we focus on specific transaction-based business segments, we can see where Robinhood excelled during the second quarter, and where it lagged:

  • Options revenues increased 48% year-over-year to $165
  • Cryptocurrency revenues increased to $233 million, versus $5 million during the year-ago quarter
  • Equities revenues decreased 26% to $52 million

Does Robinhood need to re-focus its marketing efforts away from options, and towards good old-fashioned stocks?

It’s an idea worth considering, I believe. But until Robinhood figures out how to turn its revenues into net profits, HOOD stock could slide further, possibly even to $40.

The Bottom Line

We’ve taken note of the mixed picture presented in Robinhood’s fiscal results.

It’s hard to come to any firm conclusion here. So, the best outlook is a cautious one: let HOOD stock fall to $40 before considering a long position.

At the same time, keep an eye on Robinhood’s net income versus the company’s revenues. Something seems out of whack here, and hopefully will be addressed sooner rather than later.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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