Robinhood Q1 Growth: Fueling the Fundraising Boom

Robinhood's Q1 2021 Performance: A Deep Dive into Payment for Order Flow Revenue

A preliminary examination of Robinhood’s Q1 2021 earnings, based on information from official company reports, indicates a robust beginning to the year for the commission-free trading platform.

Considering the exceptionally high levels of trading activity observed during the first quarter, this positive performance comes as little surprise.

Revenue Insights and Market Context

The overall revenue figures provide insight into Robinhood’s capacity to secure substantial funding during the quarter, even while facing technological challenges and scrutiny from the U.S. government.

The company was prominently involved in the significant speculative activity surrounding GameStop, which likely spurred increased trading volumes and, consequently, heightened regulatory attention.

The Exchange provides coverage of startups, financial markets, and investment. 

Stay informed with daily updates on Extra Crunch or subscribe to The Exchange newsletter each Saturday.

Today’s analysis focuses on the company’s financial performance, specifically through the perspective of payment for order flow (PFOF) income.

During a congressional hearing, Robinhood stated that PFOF represents the largest portion of its total revenue.

Understanding PFOF as a Key Indicator

Analyzing this revenue stream – or any deceleration in its growth – offers valuable understanding not only of Robinhood’s own financial health but also of the broader market landscape.

Strong growth and high trading volumes at Robinhood suggest a similar trend among its competitors.

Therefore, the performance of Robinhood is a crucial benchmark for companies like Public.com, eToro, and Freetrade.

Let's now delve into the available data to gain a clearer picture.

Robinhood's Strong First Quarter Performance

An initial analysis by TechCrunch of Robinhood’s Payment for Order Flow (PFOF) disclosures for the first quarter reveals the company’s earnings. This includes revenue generated from fees associated with trading S&P 500 stocks, non-S&P 500 stocks, and options contracts.

• Total PFOF revenue for January: $113.4 million.
• Total PFOF revenue for February: $120.8 million.
• Total PFOF revenue for March: $96.7 million.

These figures combine to a total of $330.8 million in PFOF revenue for Q1 2021. This result represents a significant improvement compared to the $221.4 million earned in Q4 2020, indicating approximately 50% sequential quarterly revenue growth.

Historical PFOF Revenue

Reviewing historical data and previous coverage of Robinhood’s 606 PFOF data, as compiled by TechCrunch, provides further context:

• Q1 2020: $90.9 million.
• Q2 2020: $177.9 million.
• Q3 2020: $182.8 million.
• Q4 2020: $221.4 million.
• Q1 2021: $330.8 million.

Year-over-year, Robinhood experienced approximately 267% growth in PFOF revenues. This growth enabled the company to secure substantial funding during the first quarter, despite facing scrutiny from users and governmental bodies regarding platform issues and other concerns.

To illustrate, each month during Robinhood’s Q1 2021 generated more PFOF revenue than the entirety of the same quarter in the previous year.

The company’s reliance on options PFOF revenue saw a slight decrease during the quarter. While revenue from options increased from $141.3 million in Q4 2020 to $197.7 million in Q1 2021, its proportion of total PFOF income declined.

The percentage dropped from around 64% in the fourth quarter of the previous year to approximately 60% in the first quarter of this year. The Exchange suggests this shift may be attributable to increased trading activity in stocks like GameStop and other so-called "meme stocks," which boosted PFOF income from non-S&P 500 stocks.

The Significance of Robinhood’s Q1 Performance

The positive first-quarter results reported by Robinhood were largely anticipated, considering the substantial activity observed among retail investors and traders – the primary user base of the platform. However, the magnitude of these results provides insight into the timing of the company’s initial public offering (IPO).

Such robust growth allows Robinhood to present a straightforward and compelling narrative to potential investors during the IPO process.

Comparing Robinhood to Coinbase

Coinbase, a similar consumer securities trading platform specializing in cryptocurrency, also demonstrated strong performance during the first quarter. Despite this, Coinbase’s stock price has decreased since its direct listing.

The value of Coinbase has fallen from a peak of $429.54 to $229.75 as of this morning, even after reporting a successful first quarter following its public debut.

Investor Reception and the Future

A crucial development to watch in the coming weeks will be how investors react to Robinhood, particularly in light of Coinbase’s recent performance. This is especially relevant as Robinhood transitions towards a structure where its own users can participate in its ownership.

The reception of Robinhood’s IPO will be a significant event within the consumer fintech landscape, offering a key case study for other startups.