Robinhood and SoFi beat on revenue while Coinbase’s losses widen

Coinbase, Robinhood and SoFi Technologies have seen demand for cryptocurrency trading and loans soften this year amid a challenging macro environment. While Robinhood and SoFi reported expanding revenue, Coinbase saw widening losses.

- SoFi and Robinhood report positive earnings and outlook

- The rising cost of living finds fewer retail investors willing to trade crypto

- Cathie Wood snapped up Robinhood shares at the end of October, making the stock the third biggest holding in the Ark Fintech Innovation ETF

Fintech stocks like Coinbase [COIN], Robinhood [HOOD] and SoFi Technologies [SOFI] reported earnings this week amid a gloomy macro climate, with the rising cost of living meaning fewer people are willing to trade cryptocurrencies.

SoFi was the first of three companies to report, delivering a surprise beat. Revenue for the three months to the end of September jumped 56% year-over-year from $272m to $424m, significantly higher than the $392.8m analysts polled by the Financial Times had been expecting. Earnings per share came to a loss of $0.09, slightly beating the analyst consensus of a $0.10 loss.

Robinhood also reported a revenue jump for the quarter, with its top line rising 14% sequentially to $361m, beating analyst estimates of $355.3m, according to the Financial Times. The company’s net loss narrowed from $0.34 per share in the previous quarter $0.20 per share.

Bucking the trend of revenue growth among its peers, Coinbase’s third quarter 2022 revenue of $576m marked a 28.3% decrease from the $803m reported in the previous quarter and down 53.4% year-over-year. Net loss was $545m compared with a net profit of $406m in the year-ago quarter.

Rising net interest income

Prior to the earnings, Barclays and JPMorgan had both published notes that detailed how they expected interest income to become more of a key earnings driver. This proved to be the case.

Robinhood reported net interest revenue increasing 73% sequentially to $128m, largely thanks to annual margin interest rates rising to 5.75% for its gold customers and 9.75% for non-gold customers.

Coinbase’s subscription and services segment was a bright spot amid the gloom of its year-on-year earnings, with revenue for that segment jumping 43% sequentially to $211m largely thanks to rising interest rates. Perhaps more fundamentally salient, however, is the company’s report of its monthly transacting users falling from 9 million at the end of June to 8.5 million in the recent quarter.

Higher loan balances in SoFi’s lending business helped its net interest income to more than double year-over-year from $72.4m to $157.85m. Its traditional banking segment also helped in this regard with deposits up 86% from the same quarter last year.

A challenging environment

Mizuho analyst Dan Dolev hailed SoFi’s earnings as “outstanding” given the macro backdrop and challenging environment, into a note to his clients seen by Street Insider.

Despite the rising rate environment and growing risk of recession, Robinhood lowered its operating expenses by 38% sequentially from the prior quarter down to $1.15bn. On the earnings call, CEO Vlad Tenev added that “customers continue to trust us with billions of dollars of net deposits each quarter as they invest through the cycle for the long term”.

The situation isn’t looking as rosy for Coinbase, however. “The user base is declining, and that is not a storybook quarter for the Street,” Dan Ives, senior equity analyst at Wedbush Securities, told the Financial Times. The company has been cutting costs as well, having laid off almost one fifth of its workforce last June – more than 1,000 of its employees.

Funds in focus: ARK Fintech Innovation ETF

The Grayscale Future of Finance ETF [GFOF] has Robinhood and Coinbase as its top and fifth biggest holdings, with weightings of 11.9% and 7.46% as of 4 November. The fund is down 57.1% since it launched in February of this year, and down 11.7% in the past week.

Following Cathie Wood snapping up Robinhood shares at the end of October, the stock is now the third biggest holding in the Ark Fintech Innovation ETF [ARKF] with a weighting of 7.64%, while Coinbase is fifth and accounts for 6.66% of the portfolio. The fund is down 61.85% year-to-date and down 6.15% in the past week.

All three companies are held by the Amplify Digital and Online Trading ETF [BIDS]. Robinhood is the fund’s second biggest holding with a weighting of 7.88%. Coinbase and SoFi are the sixth and seventh biggest and have been allocated 6.81% and 5.70% of the portfolio respectively. The fund is down 42.85% year-to-date and down 3.3% in the past week.