Robinhood stock falls on revenue and losses for the fourth quarter, and the company’s co-founders sacrifice a half-billion in stock compensation.
On Wednesday, Robinhood Markets Inc., a platform for trading stocks and cryptocurrencies, announced that its board had given the business permission to pursue purchasing shares held by Sam Bankman-Fried, the creator of the defunct cryptocurrency exchange FTX.
Through Emergent Fidelity Technologies, Bankman-Fried owns more than 50 million shares, or more than 7% of Robinhood HOOD, -0.76%. In consideration of Bankman-ongoing Fried’s legal battles stemming from the collapse of FTX, analysts have questioned the timing of the disposal of that interest.
In a statement made on the company’s earnings call on Wednesday, Robinhood Chief Executive Vlad Tenev stated, “We believe this repurchase will be accretive over time and removes a distraction for shareholders.” “We can’t estimate how long this will take because there isn’t much precedent for situations like these.”
The chief financial officer of Robinhood, Jason Warnick, stated in the company’s earnings statement prior to the call that “our board authorized us to seek acquiring most or all of our shares that Emergent Fidelity Technologies purchased in May 2022. The proposed share acquisition demonstrates the management team and board of directors’ faith in our company.”
In after-hours trading on Wednesday, shares of Robinhood increased by 5.5%.
The platform lost millions, and executives lost their cash bonuses, because of a “processing glitch,” which also caused Robinhood to declare fourth-quarter earnings that fell short of expectations. To “guarantee the company has as many resources as possible” to reward shareholders, the company’s co-founders Tenev and Baiju Bhatt said they canceled over $500 million in share-based pay.
The co-founders’ 2021 pre-IPO restricted stock unit awards, which included 35.5 million unvested shares, are impacted by the judgment. According to executives, the change will reduce Robinhood’s operating costs by up to $50 million every quarter beginning in the second.
In comparison to a loss of $423 million, or 49 cents per share, in the same quarter a year prior, the trading platform posted a fourth-quarter net loss of $166 million, or 19 cents per share. Compared to the same quarter last year, when revenue was $363 million, it increased 5% to $380 million.
On $396 million in revenue, analysts surveyed by FactSet predicted that Robinhood would lose 15 cents per share.
The pharmaceutical firm Cosmos Health Inc. COSM, +0.80% carried out a 1-for-25 stock reverse stock split on December 16, which drove the price of the company’s shares higher, according to Warnick during the conference call. According to him, a “processing error caused us to sell shares short into the market,” resulting in a $57 million loss when Robinhood bought back those shares as the stock increased.
In the call, Tenev stressed the need for creating an accountable culture. “I decided to stop awarding financial bonuses to the executive team in 2022 as a result of this incident.”
The number of net cumulative funded accounts, or accounts that users have sponsored with money, increased from the previous quarter to 23 million. To $186 million, transaction-based revenue decreased by 30%. As interest rates increased, net interest revenue increased by 165% to $167 million.
Following a sharp decline in cryptocurrency prices and increased anxiety over digital assets as a result of the failure of cryptocurrency exchange FTX, Robinhood reported as recession worries continue to affect stock trading. However, according to management, customer assets recovered last month along with the markets.
Christopher Allen, a Citigroup analyst, stated in December that more trading activity on Robinhood would require a “continued run higher in equities markets.” Over the previous 12 months, the S&P 500 index SPX, -1.11% has decreased 8.6%.
Robinhood has made an effort to diversify its offerings by adding complex charting, a cryptocurrency wallet, and retirement-savings services after 2021’s meme-stocks craze brought more people to stock trading. The business established Sherwood Media, a financial media channel, last month.
Over the last 12 months, the price of Robinhood stock has dropped 21.4%.
Robinhood Markets Inc.
Robinhood Markets, Inc. operates financial services platform in the United States. Its platform allows users to invest in stocks, exchange-traded funds (ETFs), options, gold, and cryptocurrencies. The company’s revenue comes from three main sources: interest earned on customers’ cash balances, selling order information to high-frequency traders (a practice for which the SEC opened an investigation into the company in September 2020) and margin lending.
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