Robin Hood: Challenging macro environment is a big headwind.

The stock trading platform Robin Hood goes public on the New York Stock Exchange.

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By now, every investor has probably heard of Robinhood (NASDAQ: NASDAQ: HOOD) because the company grew rapidly during epidemics and consumers want to invest in their stimulus funds. Whether it was the rise of corrupt currencies or the obsession with meme stocks, consumers did not want to miss out.

However, now that the dust has cleared and we are beginning to experience a more challenging macroeconomic environment, as Robinhood saw their income and profits plummet.

Chart data via YCharts

With stocks down more than 50% so far this year and more than 80% off all-time highs, the company seems to have recovered from the market in terms of its IPO. Between 2020 and 2021, consumers received numerous stimulus payments, meme stocks assumed their responsibilities, and the average investor learned more about cryptocurrencies.

I believe that these positive factors have led to a significant increase in personal investment trading platforms. However, I believe that the macro environment may be challenged in the coming quarters, and with Robinhood's 70% + revenue based on transactions, the company may see a steady decline in monthly active customers and profits. If a company keeps losing customers and the average consumer makes fewer transactions, it can double the growth.

For now, I believe long-term investors should be cautious and stay away from this downturn. While I'm sure Robin Hood has a great platform and a great user interface, I'm sure stocks will continue to come under pressure in the coming quarters.

Financial Review and Outlook

During Q1, revenue fell 43% year-over-year to $ 299 million, down nearly $ 60 million from consensus. Transaction-based revenue, which represents just over 70% of total revenue, fell 48% year-on-year to $ 218 million. Clearly, consumers began to use Robinhood very little during market pullbacks as the number of transactions decreased.

Q1 Earnings

Robin Hood

While net interest income and other earnings declined marginally lower than the company's total revenue, the overall trend during the quarter was not favorable. Options revenue fell 36% to 12 127 million, cryptocurrencies fell 39% to 54 54 million, and equities fell 73% to 36 36 million. Not the best trends to start the year.

Non-GAAP-adjusted EBITDA also suffered a loss of 14 143 million, up from a positive $ 115 million a year earlier. The big swing in adjusted EBITDA was largely due to a significant drop in revenue as well as higher operating costs. Yes, I think the company's long-term vision requires significant investment, however, management needs to focus more on a healthy balance of growth and profitability for the long-term operation of the stock.

Adjusted EBITDA

Robin Hood

Disappointingly, the monthly active subscribers actually suffered an annual loss of about 2 million. During Q1, MAUs came in at 15.9 million, representing a declining consumer for the third consecutive quarter. On top of the declining consumer, average revenue per user fell 62% year-over-year to $ 53, reflecting a gradual decline of 18%.

MAUs

Robin Hood

A portion of the declining MAUs can be attributed to increasing competition in the market, although management has also noted factors in the challenging macro environment.

When we look at the surface in depth, our big customers are still active, but we are seeing a clear decline from those who have less balance. With market uncertainty, our consumers became more cautious about their portfolios, trading less frequently and in smaller quantities across all asset classes, although corrupt activity, in particular, declined significantly. ۔

In my opinion, investment trading platforms have become very competitive because consumers have so many options to choose from. On top of the traditional brokers that have existed for decades, new platforms such as Robinhood have popped up in recent years.

Remember, 2020 and 2021 could be some of the best market conditions for trading platforms. There were many other factors at the top of the pullback-powered epidemic fuel that provided good shopping opportunities.

First, customers were filled with cash because they received multiple rounds of stimulus payments. Delays in some forms of debt repayment, such as student loans, have significantly improved consumer balance sheets, thus providing people with funds to invest.

In addition, due to the meme craze, everyday investors take a lot of interest in the stock market. With the rise of Reddit and other networking boards that talk about the stock market, consumers are happy with the investment.

After all, the significant rise in cryptocurrencies has led many consumers to look for ways to invest. Whether it's the fear of losing a potential return or the long-term reliance on cryptocurrencies, consumers want to invest.

During the revenue call, management talked about a challenging macro background, and the company recently announced that it was leaving about 10% of its workforce in an effort to improve profits.

So I challenge the team to dig deeper into cost discipline and take us to adjust the EBITDA profit by the end of the year. We're moving back to a lean operating model that we announced earlier this week, starting with a reduction in power. But make no mistake, Robin Hood is still committing a crime and is continuing to charge. We are continuing to implement our 2022 roadmap. And we've got a lot of new products in flight that we believe will add value to our customers while generating significant revenue.

I am confident that the macroeconomic environment will become increasingly challenging in the coming quarters. Rising interest rates, global disruptions due to the Ukraine war, supply chain problems, rising inflation, recession fears. These are all recent events that weigh on the stock market.

Also, let's not forget that consumers are not interested in investing in the stock market, cryptocurrencies or other investments during difficult times. The average user's personal balance sheet has improved over the years, given the numerous benefits of stimulus programs. As these cash buffers decline and potential recessions begin, trading platforms such as Robin Hood may face increasing pressure.

Value

With monthly active subscribers and per capita revenue continuing to decline, it is not surprising that stocks are below 50% year-over-year and 80% above all-time highs.

As the company unveiled in mid-2021, we were probably one of the best clients. The average person received multiple stimulus payments, in many cases debt repayments were delayed, and people were stuck at home. This combination naturally led to interest in investing in stocks and cryptocurrencies.

However, with a challenging macro background that includes rising interest rates, high inflation, and recession concerns, a healthy consumer may begin to experience some discomfort. While this is not certain, I am sure consumers will focus less on investment trading platforms in difficult times as they may be more focused on creating paychecks to pay bills.

Chart data via YCharts

Right now, the stock is currently trading near 2.5x Forward Revenue, a significant pullback compared to their historic 5-7x Forward Revenue level. The increase in income is likely to be volatile in the long run as most of their income is based on transactions. As such, users are not constantly transacting on the platform, Robinhood means low income.

It also poses a challenge to sustainable profits. During the good times of 2020 and 2021, Robinhood managed to produce positively adjusted EBITDA. Just as markets have retreated and the macro environment has deteriorated, so has Robinhood. The name is very cynical and with the fear of possible economic slowdown and / or recession, I am sure that this name can lead to negative emotions. If we start to see economic slowdown, consumers may have less cash available for day trading, and may not use high frequency trading platforms.

At the end of the day, Robinhood is a bicycle company that performs very well in happy times and underperforms in challenging times. As economists estimate we are beginning to enter a period of potentially slow growth, consumers may not have the extra funds to invest. The combination of a steady decline in MAU and low profits per user is worrisome.

Although the stock has continued its downward trend, I am sure there is some room to keep in mind. The company has approximately ً 6.2 billion in net cash on its balance sheet, equivalent to more than $ 7 in cash per share. With stocks currently trading just over $ 9, it is clear that investors are not putting too much value into basic equities.

I'm not saying investors should buy stocks just because of the large cash balance, but I'm sure it can provide a soft destination. It also doesn't surprise me if the stock continues to trend downwards and trades below the $ 7 net cash level per share.

For now, I'm on the sidelines because we can see the stock going down.