By Sri Hari NS and Niket Nishant
(Reuters) -Online brokerage Robinhood Markets beat first-quarter profit estimates on Wednesday, thanks to robust crypto trading volumes and rate hikes that boosted its net interest income.
The approval of the first bitcoin ETFs in the US in January boosted sentiment towards the crypto industry, which had been damaged by several high-profile meltdowns over the past two years.
The company, however, disclosed earlier this week that its US crypto trading arm received the so-called Wells warning from the SEC regarding tokens traded on its platform.
The warning is issued when the regulator plans to take enforcement action against a company.
“The Wells Notice clouds the future of this revenue stream,” said Lauren Ashcraft, financial services analyst at Emarketer.
But companies usually have the opportunity to respond to a well warning and rectify situations, so Robinhood “potentially still has a chance to maintain this significant source of revenue,” she added.
Robinhood said it was disappointed by the warning but would dispute the SEC’s claims and, if necessary, fight the regulator in court.
“We manage our crypto business very carefully. We have been very selective about the currencies we offer and do not offer services that have been criticized by the SEC,” said CFO Jason Warnick.
STRONG TRADING IN OPTIONS, SHARES
Stock and options trading also held up, thanks to hopes of a soft landing that encouraged retail traders to return to the market, allowing the Menlo Park, California-based company to earn 59% higher transaction-based revenue.
The momentum continued into the second quarter despite some uncertainty surrounding the timing of rate cuts by the Federal Reserve, Warnick said.
Net interest income rose 22% to $254 million, helped by tightening Federal Reserve policy that allowed companies to earn more from their deposits and bond investments.
Rate increases also allow brokers like Robinhood, which allow traders to borrow against their investments, to charge higher interest on those loans.
The company reported a profit of $157 million or 18 cents per share for the three months ended March 31, compared with expectations of 6 cents per share, according to LSEG. It had reported a loss of $511 million, or 57 cents per share, in the same quarter last year.
Net revenue increased 40% to US$618 million. Shares rose nearly 3% after the bell.
(Reporting by Sri Hari NS and Niket Nishant in Bengaluru; Editing by Tasim Zahid)
