Interest rate tailwinds buoy Robinhood’s Q3 results

Investors finally found a reason to celebrate online broker Robinhood (HOOD). The fintech company has been a beneficiary of the Fed's rate hikes, with its Q3 net interest revenue soaring nearly 75 per cent quarter-over-quarter to $128m and fueling a 14 per cent jump in total revenue to $361m.

As a result, Robinhood’s Q3 loss of $175m was narrower than expected, and the company was surprisingly profitable on an adjusted EBITDA basis. The interest rate tailwinds should persist, Robinhood says, with expectations for a $25m increase in net interest revenue in Q4. HOOD shares started climbing higher in the after-market on 2 November and extended those gains by 8 per cent on 3 November.

While HOOD managed to rally, it remains a far cry from its August 2021 stock market debut price of $38 per share, having shaved off more than two-thirds of its value since then. Investors aren’t going to let management forget it. On the Q3 earnings call, a shareholder by the name of Ottanu asked: 

“When do you think Robinhood might regain its IPO valuation?” 

Robinhood boss Vlad Tenev fielded the question, saying, “[We] recognize that the stock performance, as well as the overall market, has been hard for shareholders this year,” adding that they are focused on adding value to the business. However, he acknowledged that the market headwinds are holding the company back somewhat, pointing to greater shareholder value returning “over time."

The truth is nobody has a crystal ball, not least the highest-paid chief executive in the US financial services industry last year, and investors will believe that when they see it.

Meanwhile, Robinhood is passing along some of its interest-fueled fortunes to users by lifting the rate on sweep accounts, where users can earn interest on their brokerage cash, to 3.75 per cent for Gold users. They are not the only fintech using this strategy. SoFi, which recently scored a bank charter, on 3 November bolstered the annual percentage yield (APY) on savings and Vault accounts to 3 per cent.

In the meantime, the online broker community is ratcheting up the competition. Fidelity Investments is trolling Robinhood with the launch of commission-free cryptocurrency trading for individual investors. The investment behemoth introduced Fidelity Crypto, where investors can trade the two biggest digital assets — bitcoin and Ethereum — for zero commissions. Fidelity Digital Assets will collect a spread of no more than 1 per cent, which will show in the execution price.

Fidelity's move might be a bigger blow to US crypto exchange Coinbase than anyone, considering the trading platform's Q3 revenue was more than halved vs. year-ago levels. While Robinhood might have another reason to look over its shoulder, as long as crypto prices remain in the doldrums, they shouldn’t lose too much sleep.