November 02, 2022
Last week, retail darling Robinhood announced that it would conduct a second round of layoffs just hours before releasing its latest quarterly earnings report. The company made some $318 million in revenue during Q2 2022, but failed to turn a profit; it booked a net loss of $295 million in the quarter.
Outside of the interesting financial metrics presented in the report, Robinhood offered up two arguably more interesting metrics; metrics on their 22.9 million users.
The company’s Assets Under Custody (AUC) was one of those standout bullets in the company’s earnings report. It showed that Robinhood investors lost money in Q2 2022 as asset valuations fell. In fact, the broker-dealer’s AUC fell by 31% in the quarter, something they credited to “lower market asset valuations.”
The percentage of that AUC represented by options shrank to an insignificant figure
During the quarter, the tech-heavy Nasdaq-100 fell more than 22%. Given the Robinhood crowd’s appetite for risky stocks, most of the fall in assets at the broker can be credited to that dip. The remainder? Probably paper hands traders fleeing from weak stocks and cryptos to cash.
However, there was a silver lining: 8% of all of the company’s assets were deposited in Q2. This metric, Net Deposits, came out to $5.2 billion. Those deposits suggest that, in spite of lower valuations and money running to cash, a healthy portion of the Robinhood crowd is buying these dips.
Trading was down on a notional basis, offering evidence that though those deposits were real, individual customers are trading less than they did in past pandemic quarters. All-in-all, Robinhood processed some $163 billion worth of equity transactions in Q2.
Unfortunately, the ratio of how many of those transactions were sales or purchases is not clear. To get more clues, we would have to look at other broker-dealers, which is hard because most of America’s largest broker-dealers are privately-traded and don’t provide rich insight on their customers.
However, monthly client metrics published by one of Robinhood’s biggest competitors, Charles Schwab, shows the selloff in bonds and equities is very real for its 12.3 million active customers as well.
There was one exception to their selling, though: international and large-cap stocks saw net purchases in the quarter that numbered in the billions. In other words, in spite of selling, investors on the platforms picked up billions worth of new positions.
So, what’s the takeaway? Losses and dip-buying are not exclusive to the Robinhood crowd… You need not look further than other broker-dealers and large financial companies like SoftBank to see evidence of that.
But in spite of the market’s poor performance – and scores of people running for cover – plenty of investors are simply cycling out of their losers and buying what they gauge as greener opportunities. Those opportunities might not be generalizable from Robinhood or its competitors, but markets are fickle and funny things; we’ll keep an eye on these players in Q3 2022 for more hints.