Robinhood Earnings Preview: Trading Volumes And Payment For Order Flow Are The Key Metrics To Watch

Despite the flash in the pan for Robinhood’s stock over the last few weeks thanks to Reddit Meme-stonk traders, analysts are going to be looking for some very real world metrics when Robinhood reports earnings after the bell today. 

Since its IPO just three weeks ago, analysts have been honing in on the question of how the company can continue to drive payment for order flow growth enough to justify its valuation, Bloomberg said this morning. Payment for order flow made up about 80% of Robinhood’s Q1 revenue and, therefore, will likely be the disproportionate focus of the new public company’s upcoming report. 

Robinhood may be up against a headwind, however. Data coming into the report today shows that these metrics are “shrinking industrywide” and Robinhood is behind peers like Schwab and E-Trade. Payments for order flow were down about 23% from the prior quarter, and Robinhood’s drop was closer to 34%, the report notes. 

MKM analyst Rohit Kulkarni told Bloomberg: “The risk on Robinhood’s core business is that they’re attracting users who tend to have fairly short lifespans as customers. The company has lightning in a bottle in terms of reducing friction and making Wall Street traders out of the common man. However, the depth of that market and the length of their involvement is what makes Robinhood a show-me story.”

Volume will also be key, as the company’s revenue boils down a lot to how often its account holders trade. 

Bloomberg Intelligence analyst Julie Chariell added: “The only thing that would justify that growth is crypto trading volume. You have traditional equity and options trading coming down, but you have crypto trading — which is relatively new for them — likely being a very strong grower.”

Wolfe Research analyst Steve Chubak added: “It’s really going to be contingent on their ability to launch internationally, launch a digital wallet successfully, add the necessary bells and whistles that are going to support expansion in revenue per user, and at the same time sustain a healthy pace of account growth.”

Despite volume and payment for order flow standing out, there’s also a certain level of opacity for expectations heading into the report. Because Robinhood is such a new IPO, there is a marked lack of analyst coverage for the time being. 25 day quiet periods are still in effect for names like Goldman and Barclays, who underwrote the IPO. 

Matt Maley, chief market strategist for Miller Tabak + Co. also emphasized volumes: “Everyone is going to ask ‘What are you seeing since the company went public?’ Things are certainly going to pick up as we get out of the summer doldrums. And if they’re already picking up now, that’s going to be positive.”

Per Bloomberg, here’s what the few analysts that are covering the name are expecting:

* Robinhood sees 2Q revenue between $546m and $574m (July 27)
* Sees net loss between $487m and $537m
* 2Q revenue estimate $559.5 million (2 ests.)
* 2Q net loss estimate $514.0m (1 est.)
* 2 buys, 1 hold, 0 sell ratings from analysts; average PT $55

Eric Schiffer, chairman of private-equity firm Patriarch Organization, concluded: “The earnings call is going to matter as much as the report. For those who considered shorting the stock because they think the valuation is out of whack, what does the story portend?” 

Robinhood also announced – likely to help tease out its Reddit Meme-stonk mojo – that it would take questions from retail investors on its call today.