Robinhood posts smaller loss as higher rates boost margin trading business

Robinhood Inc (HOOD.O) posted a smaller-than-expected quarterly loss on Wednesday as the brokerage’s margin trading business benefited from rising interest rates, while increased volatility in the markets helped its equity and options segments.

Net interest revenue doubled to $128 million for the third quarter as annual margin interest rates jumped to 5.75 per cent for Robinhood Gold customers and 9.75 per cent for non-Gold customers.

Robinhood Gold is the company’s subscription service, which gives investors access to premium features.

“We anticipate Q4 net interest revenues will be up by roughly $25 million from Q3,” Chief Financial Officer Jason Warnick said on a post-earnings call.

Trading in options rose 10 per cent, while that in equities was up 7 per cent sequentially as investors repositioned their portfolios to take advantage of rising interest rates.

Those factors helped the company post revenue of $361 million in the three months ended September, comfortably beating estimates of $355 million, while narrowing its net loss to $175 million from $1.32 billion a year earlier.

Stripping off one-time items, Robinhood reported a loss of 20 cents a share, narrower than 31 cents estimated by analysts, according to data from Refinitiv IBES.

Trading in cryptocurrencies, however, fell 12 per cent sequentially to $51 million as a rout in the broader market forced investors to shun other speculative assets. It had surged 860 per cent to $51 million a year earlier.

“This is better than their competitor Coinbase, which Robinhood has taken market share from this year,” said Michael Ganian, analyst at research firm YipitData.

The commission-free brokerage also saw monthly active users fall to 12.2 million, sequentially.

A year ago, it reported 18.9 million users when Robinhood’s easy-to-use interface made it a hit among young investors trading from home on cryptocurrencies and stocks such as GameStop Corp (GME.N) amid the COVID-19 pandemic.