Financial services company Robinhood Markets reported a net loss of $423 million for its latest quarter. The news sent the company's shares tumbling by more than 15% in after-hours trading.
In its latest earnings report, the company reported $0.49 per share in the fourth quarter last year. The loss was a stark contrast to the $7 million or $0.01 per share profit it reported over the same period a year earlier before the company had gone public.
The company's shares dipped to around $9.98 per share in extended trading following the release of its earnings report. The company reported revenue of $363 million for its latest quarter ended Dec. 31. This was slightly above the $362.14 million expected by Wall Street.
Robinhood Chief Financial Officer Jason Warnick said the losses were attributed to the cost of their business model, particularly their share-based compensation. Warnick added that an increase in overall overhead expenses was also to blame.
In the fourth quarter, transaction-based income from cryptocurrencies increased by 304% to $48 million, while revenue from equity trading fell by 35% to $52 million.
Following its IPO, Robinhood, like many other Internet start-ups, has struggled to make a profit. Although income increased, the number of monthly active users fell by 8% to 17.3 million from the previous quarter as individual investors withdrew from the market.
Warnick said that even if their active users had declined, there was no indication that traders were disengaging from the market. Warnick assured investors that the company was still on track to become profitable within the year or sometime early 2023. He said the timeframe would depend on the overall market conditions and how fast they can roll out new products to customers.
During the pandemic, Robinhood experienced an influx of new customers, with homebound investors utilizing its app to trade stocks and other assets. In January of last year, it was the epicenter of a meme stock trading frenzy, which further increased its user base.
The retail trading frenzy prompted a slew of regulatory investigations. Legal fees for Robinhood increased from $1.4 million in 2019 to over $136 million in July 2021.
Analysts said that Robinhood could face more problems in the future as the Securities and Exchange Commission is expected to crack down on payment for order flow (PFOF), which is the main source of revenue for the company. Robinhood generated around 72% of its total revenue from PFOFs for its latest quarter. The company previously said that it is confident that regulators would not ban PFOFs, but it is still attempting to diversify its revenue streams.
