The stock-buying and selling mania of early 2021 lifted income at Robinhood Markets Inc. to new heights.
When its buyers purchase and provide shares and possibilities, Robinhood routes all those orders to large-pace traders, which pay out the startup brokerage for the appropriate to execute lots of of all those trades. That business enterprise, regarded as payment for get flow, generated about $331 million in profits for Robinhood in the first quarter, according to a securities submitting late past week. That is more than triple the $91 million Robinhood brought in from payment for buy move in the 1st quarter of 2020.
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Hundreds of thousands of amateur investors downloaded Robinhood’s application in the initial quarter, drawn in by the operate-up in meme shares common on Reddit’s WallStreetBets discussion board. This kind of swift growth in consumers and profits is most likely to appeal to probable buyers in Robinhood’s coming preliminary general public featuring, one particular of the most eagerly awaited listings of the 12 months. The toughness of its enterprise up right up until January prompted new and present investors to pump a whopping $3.4 billion into the business just three months back.
Robinhood desired that money infusion to preserve supporting the Reddit-fueled market rally. Soon after the clearinghouse that assisted full Robinhood’s trades requested it to write-up billions of dollars in added collateral that it did not have on hand, Robinhood limited users’ potential to acquire shares in GameStop Corp. and other highflying shares at the finish of January.
That conclusion spawned scores of buyer complaints, dozens of lawsuits versus Robinhood and a social-media marketing campaign to delete the application close to the commencing of February. But individuals trends did not finish up denting Robinhood’s enterprise. February earnings from payments for order stream at Robinhood totaled about $121 million, or almost 7% much more than what it acquired in January.
Robinhood has other resources of profits, including a membership service termed Robinhood Gold and expenses it collects lending out shopper shares to limited sellers, but payment for buy movement is the largest. The follow has been controversial for many years, with critics arguing that it encourages brokerages to maximize their income at the expenditure of buyers.
Very last 12 months, Robinhood agreed to fork out a $65 million settlement to the Securities and Exchange Fee for misleading prospects for several years about its reliance on people deals. Robinhood didn’t confess wrongdoing.
In March, a SEC formal advised lawmakers that the company is looking at whether it desired to overview payment-for-purchase-stream arrangements.