Robinhood: SEC decision on order payments is not a cure for growing pains

To ban or not to ban. As for Robinhood and Pay for Order Flow (PFOF) issues, it may no longer be an issue. Last year, the U.S. Securities and Exchange Commission considered changing rules on the controversial practice of brokers selling their clients’ trades to wholesale his market makers. A complete ban now seems unlikely.

yet this decisionEven if it were true, it wouldn’t be much help for Robinhood or its stock. PFOF is no longer the breadwinner it once was.

robin hood Commission-free trading spurred a retail stock trading boom during the pandemic. But the end of Covid-19 lockdowns and brutal market declines have put the brakes on retail trading activity, which has been particularly painful for Robinhood, which derives the majority of its revenue from his PFOF.

Robinhood suffered a $687 million loss in the first half of the year, with revenue down 43%. Monthly active users in August are down 29% from a year ago.

Robin Hood has to reinvent itself. The future may lie in the business model you’ve been trying to disrupt.

Attracting “sticky” money is the beginning. This is the long-term capital that an investor deposits with a broker. Robinhood’s average account size is Only $4,000 The end of March, according to research firm BrokerChooser. Fidelity and Charles Schwab were $279,000 and $234,000 respectively.

This difference is important in an environment of rising interest rates. Like banks, brokers use idle cash in client accounts as a source of income. At Schwab, his net interest income of $2.5 billion, up 30% in the second quarter, accounted for half of group revenue. By contrast, Robinhood’s net interest income is a more modest $74 million.

Investors have lost faith in Robinhood. The company’s market value has shrunk from last year’s high of $59 billion to just $8.5 billion. After removing the $6 billion in cash on hand, the market essentially assigns a stock value of $2.5 billion to the stock. But this also means that it doesn’t have to be all that good news for Robinhood’s stock to recover.