Two fintechs, one problem

You’d think fintech brokerages would be having the time of their lives: Retail traders are a more powerful force than ever, stocks are ignoring headwinds and climbing higher, and the pattern day trading rule was just repealed, which is expected to bring in more business.

But today, both Robinhood and SoFi Technologies are deep in the red after releasing Q1 earnings reports.

Robinhood fell 13.23% after it revealed EPS of $0.38 on revenue of $1.07 billion, missing expectations of $0.39 per share and revenue of $1.14 billion. The culprit was, as it often is, crypto: Bitcoin’s ongoing rut has been partially responsible for pushing Robinhood’s stock down 37% year to date so far.

Most of the brokerage’s revenue comes from earning a small fee for every customer transaction, but with crypto stumbling, trading activity isn’t growing at the pace it once was: Transaction-based revenue came in at $623 million for the quarter, which was up 6% year over year, but still down 20% from Q4 of last year.

Robinhood’s solution: Throw everything at the wall and hope something sticks. The firm has launched financial advisory services, credit cards, banking services, and has even gotten into the sports gambling game. But until traders start trading again, revenue might be harder to come by.

Then there’s SoFi, Robinhood’s boring little cousin, which performed well over the quarter but still got punished by investors today:

• The company announced $1.09 billion in adjusted net revenue, a 41% increase from the year prior.
• SoFi reported record loan originations of $12.2 billion, up $1.7 billion from the previous quarter. Student loan originations and personal loans both hit record highs.
• But shares fell 15.44%, thanks to the company maintaining its full-year outlook, disappointing investors who were hoping that the full-year forecast would be upped, given how well this quarter went.

Suffering from success

Despite the fact that neither company smashed earnings out of the park, investors are being a little dramatic. After all, SoFi largely reported a pretty good Q1, despite the ‘meh’ outlook. And analysts don’t think Robinhood’s poor report card is an indicator of a deep-seated problem.

“We remain constructive on HOOD’s long-term growth opportunity as management continues to ship new products, broaden the ecosystem beyond trading, and deepen wallet share with [premium] customers,” explained Morgan Stanley equity analyst Michael Cyprys in a note today.

The bigger issue may just be that expectations are too high: As the S&P 500 continues to smash record after record, companies are getting graded on a curve. And a B+ just isn’t a passing grade anymore.—LB