Is the trading boom of 2020 and 2021 slowing?
That’s a question The Exchange has had on its mind since Robinhood released its latest IPO filing. The popular U.S. consumer-focused investing app told investors in the document that it expects revenues to decline in the third quarter compared to its Q2 performance. The company highlighted historically strong crypto volumes in preceding quarters as part of the reason for its anticipated revenue decline.
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Naturally, we got to thinking about Coinbase.
It’s likely fair to say that Coinbase and Robinhood are bullish enough about the cryptocurrency market to be unbothered by short-term changes to crypto trading volumes. Coinbase discussed rising and falling consumer interest in trading cryptos in its own IPO filings, for example.
The now-public unicorn has lived through crypto ups and crypto downs. A decline in consumer interest in the next few months or quarters is not a huge deal, assuming one keeps a long enough perspective and the crypto-infused future that its fans expect comes to pass.
The boom in crypto demand among U.S. consumers lifted many a boat in recent quarters. Coinbase posted insanely good early-2021 results thanks to a bull run in cryptocurrency prices that drove retail interest and trading fees. Robinhood also saw a rush of crypto demand, something that TechCrunch explored here. And Square itself has seen crypto revenues explode.
Sure, equities interest and demand for options also elevated the fortune of many consumer fintechs during the COVID-19 savings and investing boom. But crypto revenues had a big part to play. Let’s examine both situations through the lens of the latest from Robinhood.
Robinhood’s market notes
There are some 316 mentions of “cryptocurrency” in Robinhood’s latest IPO filing. We’re going to stick to those we consider the most important.
As context, Robinhood shared preliminary Q2 data. We discussed it here if you want to go deeper into the aggregate figures. But after its disclosure of hard numbers, Robinhood had some interesting notes about the current quarter (emphasis TechCrunch):
Trading activity was particularly high during the first two months of the 2021 period, returning to levels more in line with prior periods during the last few weeks of the quarter ended June 30, 2021, and remained at similar levels into the early part of the third quarter. We expect our revenue for the three months ending September 30, 2021 to be lower, as compared to the three months ended June 30, 2021, as a result of decreased levels of trading activity relative to the record highs in trading activity, particularly in cryptocurrencies, during the three months ended June 30, 2021, and expected seasonality.
And in a discussion of some other performance metrics, including funded accounts and the like, Robinhood had this to say (emphasis TechCrunch):
We anticipate the rate of growth in these Key Performance Metrics will be lower for the period ended September 30, 2021, as compared to the three months ended June 30, 2021, due to the exceptionally strong interest in trading, particularly in cryptocurrencies, we experienced in the three months ended June 30, 2021, and seasonality in overall trading activities.
Falling revenue and slowing KPM growth is not really the world’s best set of metrics to flash up during an IPO run. But a quick scan of Robinhood’s 2020 revenues indicates it’s unlikely that the unicorn will be able to post year-over-year growth in the final two quarters of 2021. Still, its period of rapid-fire revenue growth appears to have come to an end after Robinhood posted top-line expansion in every quarter since Q4 2019.
To its credit, Robinhood makes it clear that cryptocurrencies are inherently volatile in its IPO filing. A few of its risk-focused comments:
The prices of cryptocurrencies are extremely volatile. Fluctuations in the price of various cryptocurrencies may cause uncertainty in the market and could negatively impact trading volumes of cryptocurrencies, which would adversely affect the success of RHC’s business, financial condition and results of operations.
And:
A substantial portion of the recent growth in our net revenues earned from cryptocurrency transactions is attributable to transactions in Dogecoin. If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected.
Does this mean that The Exchange checks in on Dogecoin trading volume on a regular basis to better understand how venture-backed, IPO-ready startups may perform? Yes.
So what does this mean for Coinbase?
Coinbase has a different user base than Robinhood, which means that changes in crypto volumes at the latter may not manifest in the former in precisely the same way. But the market is telling us that Coinbase may not be in for a period of sustained growth. How so? Coinbase has seen its share price decline from post-direct listing highs of $429.54 per share to around $232 as of this morning. The company also set its direct listing reference price at $250, a figure that it has since slipped underneath.
And, you know, like they say, stocks don’t tend to go down when investors become more bullish about the present value of their future cash flows.
But there’s good news to be had as well: Looking at Bitocinity data, Coinbase bitcoin trading volume has trended up ever since reaching a local minimum — near-term nadir? — in September 2018. The long-term trend in bitcoin volume may bode well for Coinbase and other fintechs that handle cryptos, regardless of what happens in the next few quarters.
That we’re having this conversation after a selloff in cryptos that pushed the value of bitcoin temporarily under the $30,000 mark is not a surprise; consumer interest in cryptos pairs with price gains.
As a final note, investors are still bullish on the larger crypto sector. We can tell that thanks to a recent headline that caught our eye: “Crypto Exchange FTX Valued at $18 Billion in Funding Round.” That’s from yesterday.
So, yes, Robinhood is stating somewhat clearly that crypto-powered business growth may be set to endure some momentum reversals. But that, as always, won’t stop the true believers.
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