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What Robinhood’s warnings about crypto trading say about Coinbase’s near-term future
Is the trading boom of 2020 and 2021 slowing?
That’s a question The Exchange has had on its mind since Robinhood released its latest IPO filing. The popular U.S. consumer-focused investing app told investors in the document that it expects revenues to decline in the third quarter compared to its Q2 performance. The company highlighted historically strong crypto volumes in preceding quarters as part of the reason for its anticipated revenue decline.
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Naturally, we got to thinking about Coinbase.
It’s likely fair to say that Coinbase and Robinhood are bullish enough about the cryptocurrency market to be unbothered by short-term changes to crypto trading volumes. Coinbase discussed rising and falling consumer interest in trading cryptos in its own IPO filings, for example.
The now-public unicorn has lived through crypto ups and crypto downs. A decline in consumer interest in the next few months or quarters is not a huge deal, assuming one keeps a long enough perspective and the crypto-infused future that its fans expect comes to pass.
The boom in crypto demand among U.S. consumers lifted many a boat in recent quarters. Coinbase posted insanely good early-2021 results thanks to a bull run in cryptocurrency prices that drove retail interest and trading fees. Robinhood also saw a rush of crypto demand, something that TechCrunch explored here. And Square itself has seen crypto revenues explode.
Sure, equities interest and demand for options also elevated the fortune of many consumer fintechs during the COVID-19 savings and investing boom. But crypto revenues had a big part to play. Let’s examine both situations through the lens of the latest from Robinhood.
Robinhood’s market notes
There are some 316 mentions of “cryptocurrency” in Robinhood’s latest IPO filing. We’re going to stick to those we consider the most important.
As context, Robinhood shared preliminary Q2 data. We discussed it here if you want to go deeper into the aggregate figures. But after its disclosure of hard numbers, Robinhood had some interesting notes about the current quarter (emphasis TechCrunch):
Trading activity was particularly high during the first two months of the 2021 period, returning to levels more in line with prior periods during the last few weeks of the quarter ended June 30, 2021, and remained at similar levels into the early part of the third quarter. We expect our revenue for the three months ending September 30, 2021 to be lower, as compared to the three months ended June 30, 2021, as a result of decreased levels of trading activity relative to the record highs in trading activity, particularly in cryptocurrencies, during the three months ended June 30, 2021, and expected seasonality.
And in a discussion of some other performance metrics, including funded accounts and the like, Robinhood had this to say (emphasis TechCrunch):
We anticipate the rate of growth in these Key Performance Metrics will be lower for the period ended September 30, 2021, as compared to the three months ended June 30, 2021, due to the exceptionally strong interest in trading, particularly in cryptocurrencies, we experienced in the three months ended June 30, 2021, and seasonality in overall trading activities.
Falling revenue and slowing KPM growth is not really the world’s best set of metrics to flash up during an IPO run. But a quick scan of Robinhood’s 2020 revenues indicates it’s unlikely that the unicorn will be able to post year-over-year growth in the final two quarters of 2021. Still, its period of rapid-fire revenue growth appears to have come to an end after Robinhood posted top-line expansion in every quarter since Q4 2019.
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How Robinhood’s explosive growth rate came to be
This afternoon Robinhood filed to go public. TechCrunch’s first look at its results can be found here. Now that we’ve done a first dig, we can take the time to dive into the company’s filing more deeply.
Robinhood’s IPO has long been anticipated not only because there are billions of dollars in capital riding on its impending liquidity, but also because the company became something of a poster child for the savings and investing boom that 2020 saw and the COVID-19 pandemic helped engender.
The consumer trading service’s products became so popular and enmeshed in popular culture thanks to both the “stonks” movement and the larger GameStop brouhaha, that the company’s public offering carries much more weight than that of a more regular venture-backed entity. Robinhood has fans, haters, and many an observer in Congress.
Regardless of all that, today we are digging into the company’s business and financial results. So, if you want to better understand how Robinhood makes money, and how profitable or not it really is, this is for you.
We will start with a more in-depth look at growth and profitability, pivot to learning about the company’s revenue makeup, discuss a risk factor or two, and close on its decision to offer some of its own shares to its users. Let’s go!
Inside Robinhood’s growth engine
Before we get into the how of Robinhood’s growth, let’s discuss how big the company has become.
The fintech unicorn’s revenue grew from $277.5 million in 2019 to $958.8 million in 2020, which works out to growth of around 245%. Robinhood expanded even more quickly in the first quarter of 2021, scaling from year-ago revenue of $127.6 million to $522.2 million, a gain of around 309%.
Those are numbers that we frankly do not see often amongst companies going public; 300% growth is a pre-Series A metric, usually.
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Robinhood is going public and we’re very excited
It’s a sweltering day here in New York City, and that means Wall Street is on fire, and so is Robinhood, apparently. The popular stock trading app officially filed its Form S-1 with the SEC a few hours ago to go public, where it will trade under the ticker “HOOD.”
The Equity crew has been yammering about Robinhood for years now, and we have been chomping at the bit to see those S-1 results for what feels like ages. Well, we finally got the numbers, we chomped that bit (or at least Alex and Danny did, since Natasha went on vacation about 15 minutes before the IPO hit the wires), and so here’s a special Equity Shot to talk about all the highlights.
We talked about so much in an itsy-bitsy 15-minute episode: crazy revenue growth, crazy revenue concentration from two major sources, regulatory hurdles that the company has been clearing up, better financials with a bit of nuance on the company’s Q1 finances, and the company’s special plan for its IPO.
Wowza.
Here’s what we got up to:
- Historical growth and profitability.
- Revenue mix and revenue concentration, along with constituent concerns.
- The importance of options-related incomes for the company.
- Dogecoin.
- Why the company’s adjusted income may help it assuage investors who have their eyes pop out of their skulls when they see its GAAP Q1 2021 results.
And a lot more. Of course, if you hate Robinhood, we will be back with our normally scheduled Friday episode of Equity tomorrow.
Equity drops every Monday at 7:00 a.m. PDT, Wednesday, and Friday morning at 7:00 a.m. PDT, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.
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Someone made a game where you ride the rapidly changing prices of cryptocurrencies
The cryptocurrency world is a strange one, but at least it has a sense of humor. A new game has you riding a little crypto-car along the wildly fluctuating prices of major and minor currencies. It’s quite ridiculous, and it isn’t even a bad game!
It’s called Crypto Rider, predictably, and is very much a spawn of the popular Line Rider type of game, though (hopefully) different enough that there won’t be any cease and desists forthcoming.
You select your car, then pick a chart to ride — most are a ride from a coin’s humble start to its highest value. But there’s a mountain-like “total market cap” track, a “drag race” where you need to clear a valuation gap and one that must be depressing for BTC holders: a bumpy downhill ride from $20K to $7,850. New tracks should appear in time, as new cryptocurrencies rise and fall.
The game is cute — there are fun messages along the track, and the exhaust is tiny coins — and you collect coins toward unlocking new cars. I’m pretty sure they’re just aesthetic changes, but I’m gunning for a Dogecar anyway.
“The game was a side project for me to do in my own time,” wrote back Daniel Fahey, founder of the developer, SuperFly Games. “So the first original 10 tracks were what I felt were needed to give the game some replayability. But after the reception the game has received during its launch day, I will certainly be adding more tracks.”
It’s free, it’s dumb and it’s a fun way to waste a few minutes while you inadvertently lampoon the hubris of this rushed attempt to overthrow existing financial systems.
“I hope people find the game funny because it certainly wasn’t meant to be serious,” Fahey wrote. “It’s a bit of light-hearted fun in a somewhat serious space.”
Blockchain stuff is promising and we’ll get there eventually. But as the game seems to emphasize, it’ll probably be quite a ride.
You can download Crypto Rider for iOS or Android.
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How to talk about cryptocurrency at the holiday dinner table
You’re sitting down to a nice meal and your aunt, always one step ahead, mentions she wants to start investing in Bitcoin. You freeze, a drip of gravy plopping off the ladle. It’s your time to shine. You got this. First, you know that the state of crypto is very, very good. This has been a banner year for cryptocurrencies. Bitcoin rose from $738 a year ago to $8220 as of this year.… Read More
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Moolah, The Divisive Startup Heavily Involved In The Dogecoin Community, Is Closing Down
Moolah, a digital currency startup that had a particularly prominent role in the development and demise of dogecoin, has announced that it will shut down at the end of October. The company, which is just 10 months old and provides a range of services for virtual currencies like bitcoin and dogecoin — including a currency exchange — will close on October 31. Moolah says it will file… Read More
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