Markets

Robinhood Warns Retail Trading Is Slowing Down, Especially in Cryptocurrencies

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  • Robinhood said it anticipates revenue will be lower in the third quarter of 2021 relative to the second quarter.
  • This is 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," Robinhood said in an amended prospectus released Monday.
  • Options trading accounts for about 38% of Robinhood's revenue while crypto is 17% of revenue.

Stock trading app Robinhood — which is expected to go public as soon as next week — warned of a potential slowdown in trading revenue and new clients as the boom in retail investing starts to decelerate.

"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," Robinhood said in an amended prospectus released Monday.

The slowdown is coming off booming levels. The Menlo Park, California-based free-trading pioneer estimates second-quarter 2021 revenue between $546 million and $574 million. This would be a 129% surge from the $244 million in the second quarter of 2020.

However, the company estimates a net income loss between $537 million and $487 million in the second quarter of 2021, compared with a $1.4 billion loss in the first quarter.

Robinhood — which offers equity, cryptocurrency and options trading, as well as cash management accounts — benefits from more speculative trading practices from its clients. Options trading accounts for about 38% of revenue while crypto is 17% of revenue. Plus, margin and stock lending trading levels have been elevated in 2021.

A stagnation in options, trading on margin and crypto — with the price of bitcoin below $30,000 — could hurt Robinhood's growth as it heads into one of the biggest public debuts of the year.

Robinhood also said it anticipates the growth rate of new clients will be lower in the third quarter of 2021, compared to the second quarter, "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," the S1 said.

Robinhood expects its app to have 22.5 million funded accounts — those tied to a bank account — as of the second quarter, up from 18 million total as of the first quarter of 2021.

Robinhood — whose longstanding mission is to "democratize" investing — experienced record levels of new, younger traders entering the stock market during the pandemic. That surge has continued into 2021, marked by frenzied trading around so-called meme stocks.

The company alluded to clients who created accounts around January's GameStop short squeeze, but perhaps have discontinued trading as the frenzy subsided.

"We experienced strong growth in new customers during the first six months of 2021," the filing said. "We do not know whether, over the long term, cohorts comprised of these new customers will have the same characteristics as our prior cohorts. To the extent these new customers do not grow their cumulative net deposits or trading frequency on our platform to the same extent as new customers that joined in prior periods, our ability to expand and grow our relationship with these customers will be impacted."

Robinhood is seeking a market valuation of as much as $35 billion in its upcoming IPO. The stock trading app will attempt to sell its share at a range of $38 to $42 per share.

— with reporting from CNBC's Kate Rooney.

Robinhood is a five-time CNBC Disruptor 50 company that topped this year's list.

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