Robinhood Markets, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Comparisons are with the three months ended March 31, 2021 unless otherwise stated. Robinhood operates brokerage, crypto, and cash-management services; much of its revenue depends on trading activity and transaction-based payments.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 | Change or context |
|---|---|---|---|
| Total net revenue | $299 million | $522 million | Down 43% |
| Transaction-based revenue | $218 million | $420 million | Down 48%; 72% of Q1 2022 revenue |
| Net interest revenue | $55 million | $62 million | Down 11% |
| Net loss | $392 million | $1.445 billion | Q1 2021 included a $1.492 billion fair-value expense on convertible notes and warrants |
| Adjusted EBITDA | $(143) million | $115 million | Non-GAAP; worsened by $258 million |
| Operating expenses | $690 million | $464 million | Up 49%; exceeded revenue |
| Operating margin | Approximately (131)% | Not calculated here | Derived from revenue less operating expenses; not a reported filing measure |
| Operating cash flow | $437 million | $(1.882) billion | Improvement chiefly reflected changes in operating assets and liabilities |
| Cash and cash equivalents | $6.191 billion | — | At March 31; investments were an additional $40 million |
| Total assets / liabilities / equity | $18.872 billion / $11.741 billion / $7.131 billion | — | At March 31 |
| Credit facilities | $2.81 billion committed; no borrowings outstanding | — | At March 31; facility terms subsequently amended |
Trading-related declines were broad: options revenue fell 36% to $127 million, cryptocurrency revenue fell 39% to $54 million, and equities revenue fell 73% to $36 million. Net interest revenue declined as securities-lending income fell, partly offset by higher margin interest. Margin interest rose to $35 million; securities-lending revenue fell to $24 million.
Technology and development expense increased to $266 million and general and administrative expense to $268 million. Share-based compensation was $220 million, including $84 million related to market-based RSUs and $129 million related to time-based RSUs. Marketing expense fell to $34 million, primarily due to lower referral incentives and reduced brand and digital marketing.
Key operating metrics: net cumulative funded accounts were 22.8 million, up 27% year over year; monthly active users were 15.9 million, down 10%; assets under custody were $93.1 billion, up 15%; and annualized revenue per user was $53, down 62%. Q1 net deposits were $5.7 billion, while net market losses were $10.6 billion.
Material changes versus prior period
- Revenue fell 43%, driven mainly by lower trading activity and volumes across asset classes; daily average revenue trades declined 65% for equities, 40% for options, and 76% for cryptocurrencies.
- Although GAAP net loss narrowed from the prior-year quarter, Q1 2021 included the large non-cash fair-value charge on convertible notes and warrants. Q1 2022 instead reflected a substantial increase in operating expenses, including IPO-related share-based compensation.
- Operating cash flow turned positive, but the filing attributes much of the change to working-capital movements: lower user receivables and higher user payables, partly offset by lower collateral associated with securities loaned. It should not be interpreted as equivalent improvement in underlying profitability.
- Cash and cash equivalents decreased from $6.253 billion at December 31, 2021 to $6.191 billion at March 31, 2022. Total assets declined to $18.872 billion from $19.769 billion.
Outlook, commentary, risks, and unusual items
- Outlook: No numeric revenue or earnings guidance is provided. Management said available cash, available credit lines, and expected operating cash flow should meet liquidity needs for the next 12 months, based on current operations.
- Workforce: After quarter-end, Robinhood announced a reduction of approximately 330 employees, about 9% of full-time staff. It estimated $17–$23 million of cash restructuring and related charges, substantially in Q2 2022, and expected a $30–$36 million net reduction in share-based compensation expense in that quarter. Management expected year-end 2022 headcount to be roughly flat compared with year-end 2021, with hiring scaled back.
- Acquisition: On April 16, 2022, Robinhood agreed to acquire U.K.-based Ziglu for estimated consideration of approximately $170 million, primarily cash, subject to adjustments, regulatory approval, and other closing conditions. Closing was expected by Q1 2023.
- Crypto accounting: Robinhood planned to adopt SEC Staff Accounting Bulletin 121 for Q2 2022. It estimated that adoption would add corresponding crypto-asset and safeguarding liabilities of approximately $20 billion to the balance sheet, had it applied the guidance at March 31, 2022. This would gross up reported assets and liabilities and represents customer crypto held in custody.
- Liquidity and capital: Current assets were $18.355 billion and current liabilities $11.581 billion, but these balances include substantial customer-related and regulated balances. Broker-dealer subsidiaries were reported in compliance with regulatory capital requirements. A $2.28 billion secured facility replaced the prior facility in April 2022; commitments could increase under specified conditions.
- Legal and regulatory: Contingency accruals were $104 million at March 31, up from $85 million at year-end. Matters include litigation concerning best execution/PFOF, outages and 2021 trading restrictions, and investigations into options, account takeovers, crypto compliance, trade reporting, and other issues. A NYDFS settlement in principle concerning crypto AML and cybersecurity matters was expected to include a monetary penalty and monitor, subject to final documentation. Outcomes and potential losses for several proceedings could not be estimated clearly.
- Principal business risks: dependence on transaction-based revenue and market makers; possible PFOF restrictions; lower trading activity and customer engagement; market and crypto volatility; regulatory and litigation exposure; operational outages, cybersecurity and custody risks; and the ability to manage costs and growth. Management reported disclosure controls and procedures were effective as of quarter-end.
Important facts for investors to verify
- Whether trading volumes, active users, deposits, and revenue stabilize or continue to decline, and whether customer growth translates into monetizable activity.
- How much of operating cash flow reflects recurring business performance versus customer-balance and other working-capital movements.
- The scale and timing of share-based compensation, restructuring costs, and any future operating-cost reductions.
- The effects of adopting SAB 121, including the related disclosures and balance-sheet presentation of customer crypto assets and safeguarding obligations.
- Progress, cost, and regulatory approval status of the Ziglu acquisition and the revised credit facility.
- Developments in significant litigation and regulatory matters, including any penalties, settlements, required business changes, or impacts on licenses and operations.