Robinhood (HOOD) co-founder and CEO Vladimir Tenev is dismissing concerns from some in the market that the Fed’s interest rate cuts will hurt the company’s performance in 2025.
“As you may recall, we went public in a zero interest rate environment and we did extremely well in a zero interest rate environment. Volume was positive, we were growing 300-400% annually,” Tenev told Yahoo Finance at the Goldman Sachs Communacopia and Technology Conference on Tuesday.
Robinhood told analysts on its second-quarter earnings call that the Fed’s 25 basis point interest rate cut would reduce revenue by $40 million. The decline in revenue reflected lower revenue from interest-bearing accounts.
Read more: How the Federal Reserve’s interest rate decision will affect your bank accounts, CDs, loans and credit cards
Tenev argued that the company’s further cryptocurrency efforts (including the acquisition of Bitstamp exchange), new credit card offerings, and addition of asset management services will help it withstand the low interest rate environment.
Lower interest rates could also lead to more trading by retail investors on the platform. “So overall, I think business will continue to perform well,” he said.
The Street, however, isn’t so convinced.
“While management has suggested that potentially higher trading revenues will more than offset the decline in interest-related revenues as a ‘natural hedge,’ we are not as convinced,” JPMorgan analyst Ken Worthington said in a recent client note.
Worthington added, “The current trading environment is highly sensitive to increased volatility due to macro pressures such as interest rate cuts and geopolitical events such as the looming US presidential election, which makes engagement and performance, especially across retail, difficult to gauge. Additionally, September has historically been one of the worst performing months for the S&P 500, which will dampen client performance. Also, we understand that retailers generally do not like to trade at a loss.”
Analysts have given Robinhood an underweight rating, which equates to a sell rating.
Opposing points of view are being put to the test.
It has been widely reported that the Federal Reserve will cut interest rates for the first time in years on Sept. 18 in an effort to stabilize an economy that has begun to slow. Jan Hatzius, chief economist at Goldman Sachs, told Yahoo Finance at the conference that he expects a round of rate cuts from the Fed.
Robinhood has been able to thrive in a high-interest rate environment by cutting costs and launching new products.
The company reported second-quarter revenue of $682 million, up 40% from the same period last year. Net income increased significantly from $0.03 to $0.21 per share.
The story continues
Robinhood shares are up 50% since the start of the year, outperforming a 15% gain in the S&P 500. But the stock has fallen 15% over the past three months as concerns over interest rate cuts and the macro environment have surfaced.
Read more articles from the 2024 Goldman Sachs Communacopia and Technology Conference:
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