Why Investors Should Frown on Robinhood's Results

When Robinhood (NASDAQ:HOOD) reported quarterly results, the stock fell by 10%. Its surprise reliance on dogecoin, a cryptocurrency, on revenue growth shocked investors. Not only does Robinhood rely on novice investors willing to buy stocks based on memes but it needs cryptocurrency trading for growth.

In the second quarter, the firm lost $2.16 a share on a GAAP basis. Revenue rose by 131.4% to $565 million. The $528 million charges for the change in the value of convertible notes and warrant liability accounted for much of the loss in the quarter.

Monthly active users rose by 109% to 21.3 million. HOOD stock fell despite that growth and the $112 average revenue per user. The massive $1 billion in stock-based compensation charge is an eye-opener. Furthermore, dogecoin accounted for over 40% of Robinhood’s total revenue.
After peaking in Feb., the volatility for stocks is waning considerably. Reddit tried to re-ignite the speculative nature of meme stock trading in June.

But with mounting trading losses, retail investors cannot afford to lose more. Chances are rising that retail investors will lose interest completely and stop using the Robinhood trading app.

Investors are better off buying TD (TSX:TD) or Schwab stock for stability. Those firms have revenue that does not depend solely on stock market activity. Futu Holdings (NASDAQ:FUTU) has better growth prospects and trades at a lower market cap.