Robinhood Markets, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited results; comparisons are year over year unless noted.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Total net revenue | $486 million | $318 million | +53% |
| Transaction-based revenue | $193 million | $202 million | -4% |
| Net interest revenue | $234 million | $74 million | +216% |
| Operating expenses | $466 million | $610 million | -24% |
| Net income (loss) | $25 million | ($295 million) | Turned profitable |
| Net income (loss) per share | $0.03 | ($0.34) | |
| Adjusted EBITDA (non-GAAP) | $151 million | ($80 million) |
- Q2 net margin was approximately 5.1%, versus a loss margin of approximately 92.8% in Q2 2022.
- Options revenue rose 12% to $127 million; crypto revenue fell 47% to $31 million and equities revenue fell 14% to $25 million. Higher interest rates lifted revenue from corporate cash, customer cash, margin lending, and cash sweep.
- For the first half of 2023, revenue was $927 million versus $617 million; net loss was $486 million versus $687 million. Operating expenses increased to $1.416 billion from $1.300 billion, primarily reflecting a $485 million share-based compensation charge for cancelling founders’ awards.
- First-half operating cash flow was positive $1.198 billion, compared with negative $826 million in 2022; investing cash use was $482 million, including $485 million of held-to-maturity investment purchases. Cash, cash equivalents, segregated cash, and restricted cash totaled $10.069 billion at June 30.
- At June 30, total assets were $28.660 billion, liabilities $21.473 billion, and stockholders’ equity $7.187 billion. Cash and cash equivalents were $5.829 billion; held-to-maturity investments were $486 million at amortized cost.
- No borrowings were outstanding under revolving facilities; committed capacity totaled $2.81 billion. Broker-dealer subsidiaries reported compliance with regulatory capital requirements. Management said available liquidity should meet needs for the next 12 months.
Business changes, outlook, and risks
- Operating metrics: assets under custody increased 38% year over year to $88.8 billion, while monthly active users declined 23% to 10.8 million. Net cumulative funded accounts rose 1% to 23.2 million. Q2 net deposits were $4.1 billion, down from $5.2 billion.
- Management attributed revenue growth chiefly to interest income and described ongoing efficiency efforts, including a Q2 workforce reduction that generated nearly $10 million of employee-related charges. No specific earnings or revenue guidance was provided. Robinhood stated a goal of offering U.K. brokerage services by year-end 2023.
- The $485 million founders’ award cancellation charge affected first-half GAAP results; the awards were cancelled in February and no further expense is expected. Adjusted EBITDA excludes this charge. The $104 million cash acquisition of X1 closed July 3, 2023, after quarter-end.
- Interest-rate sensitivity analysis indicated that a hypothetical 100-basis-point rate decrease would negatively affect total net revenue by approximately 11%. Results remain exposed to trading activity, market conditions, rates, crypto volatility, and regulation, including potential changes to payment for order flow and crypto oversight.
- Legal and regulatory matters include investigations involving brokerage practices, crypto, recordkeeping, cybersecurity, and earlier trading restrictions. Contingency accruals were $86 million; for many matters, potential losses could not be reasonably estimated. The Massachusetts regulatory matter and multiple securities-related cases remain pending.
Important facts for investors to verify
- How much of Q2’s revenue and profitability improvement is sustainable if interest rates decline or trading activity remains weak.
- The effect of the $485 million founders’ award cancellation on GAAP results, and continuing share-based compensation and potential dilution.
- Trends in active users, customer deposits, assets under custody, and transaction revenue by asset class.
- Developments in material legal and regulatory matters, including PFOF, crypto listings and custody, and state proceedings.
- Whether liquidity, regulatory capital, and operating cash flows remain adequate as customer balances and market conditions change.