Vlad Tenev
Photo: Spencer Platt/Getty Images

Live by the meme stock, die by the meme stock

Protocol Fintech

Hello and welcome to Protocol | Fintech! This Friday: Robinhood's dismal earnings, "fly now, pay later," and a token that's a real dog.

Robinhood grapples with fundamentals

Robinhood's stock has been known for wild and inexplicable swings since it went public in July. Live by the meme stock, die by the meme stock? The company has seemed vulnerable to the same social media chatter that moves the shares its users so avidly trade.

But this week's stock plunge was pretty easy to explain: Robinhood's fundamentals looked terrible. The stock dropped below its IPO price on stunningly weak revenue and growth numbers. And the company put out a downbeat outlook that led to serious questions on Wall Street.

"Is the Robinhood revolution over?" investing personality Jim Cramer asked. "I think it hit the pause button."

"Our growth has come in waves," CEO Vlad Tenev said on the earnings call. In Q3, the waves were troublingly tepid.

  • Robinhood's revenue fell by about a third from the previous quarter, to $365 million. New funded accounts fell to 660,000, down sharply from 5.1 million in the second quarter. Total monthly active users slipped.
  • Crypto trading, which propelled Robinhood's strong performance in the spring, declined. And the company's quarterly loss deepened to $1.32 billion from $11 million in the year-ago period.
  • Chief Financial Officer Jason Warnick cited "seasonal headwinds" and volatility. Crypto is "very difficult to predict," he said.
  • The report led a JPMorgan analyst to tell clients: "We question the ability of the company to generate competitive margins over time given the focus on such small accounts that have limited room to be profitable."

The way forward looks fuzzy. Tenev said the "surges" that propel Robinhood forward come "during periods of increased volatility or market events."

  • That's part of the problem. Robinhood makes money when the market goes on wild rides. That makes forecasting difficult. First came the GameStop trading frenzy, then dogecoin mania — hardly the basis for the kind of solid business with predictable earnings that Wall Street likes.
  • Rob Siegel, a management lecturer at Stanford's Graduate School of Business, called Robinhood "a meme platform." "If a meme stock takes off, Robinhood does well. If not, they suffer," he told Protocol.
  • The problem goes as deep as its business model. In crypto as well as stock, Robinhood makes most of its money from rebates it earned for sending trade orders to market makers, also known as payment for order flow. The SEC has threatened to ban the practice because it can misalign a broker's incentives.
  • Investors are starting to see their incentives aren't aligned well with Robinhood's business model, either, since it's inherently dependent on undependable trading volume.
  • Robinhood has "largely grown in bursts and step functions over time rather than in a straight line," Goldman Sachs analyst Will Nance told clients.

Robinhood needs steadier, less volatile revenue streams. Without that, Robinhood will continue to struggle with "much larger long-term challenges," Logan Allin, managing general partner of Fin Venture Capital, told Protocol.

— Benjamin Pimentel


Effecting and making trades doesn't just happen automatically. To withstand the rigor and speed of the retail investor revolution, you need a strong technological backbone to power the market. Apex Fintech Solutions is a leader in the fintech space, providing the infrastructure upon which some of the world's top digital trading platforms operate.

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From Protocol | Fintech

Can regulators slow down the rise of crypto lending?Crypto lending is growing despite the regulatory uncertainty.

Affirm takes aim at "fly now, pay later." The "buy now, pay later" powerhouse is eyeing huge opportunities in travel.


"It would be in­ap­pro­pri­ate for any­thing like these non-spe­cific and con­fus­ing stan­dards to re­place the cur­rent law and reg­u­la­tions we have on the books here in the U.S." Pe­ter Van Valken­burgh, re­search di­rec­tor at Coin Cen­ter, discussing new international guidelines for crypto regulations.

"We've been one of the few cops on the beat because of limited statutory authority related to anti-fraud and anti-manipulation."Rostin Behnam, the Biden administration's nominee to head the Commodity Futures Trading Commission, on the need for more crypto regulation.

"There will be lots of good that will come out of the spirit of open banking. When I think and talk about open banking, I try to think of examples that are not just about 'Let's aggregate everyone's data for everything,' but more about what are some of the benefits you get out of bringing data together and creating a kind of transparency."Vanessa Colella, Citi's chief innovation officer, on open banking.

3 questions for Tracy Basinger, senior adviser at Klaros Group

Basinger was formerly the head of supervision at the Federal Reserve Bank of San Francisco.

What fintech trend is most troubling for you?

I worry the most about the proliferation of data on consumers and small businesses and how that data is used. "Good" data, used correctly, has great promise to improve accessibility of financial services. But data from an already biased financial system could easily be used to exacerbate existing inequalities.

What's been your biggest professional blunder, and how did it help you?

When I was in my first managerial position, leading a team I had previously been a member of, I thought I had all the brilliant ideas and answers to everything that needed to be "fixed." I promptly sat in my office and decided on all the changes that we were going to make. I then had a meeting with my team to announce the changes and was met with a near revolt. That blunder certainly reinforced the importance of communication and collaboration. It wasn't necessarily that my ideas were bad ones, but I didn't engage my team and didn't give them a voice in changes that impacted them.

What problem would you like to see a fintech company solve?

I would like to see all fintech companies — or more so, all companies — focus on understanding their impact on the environment and their exposure to climate risks and then becoming more sustainable.

The regulators are all placing climate risk on their agenda. As a bank or fintech, understanding how the regulators are starting to frame this and what kind of information you would need to collect to understand what your risk is would be a helpful first exercise.

Need to know

Affirm announced a partnership with American Airlines. The "buy now, pay later" company will let American Airlines customers pay by installment.

The Build Back Better bill would limit crypto tax loopholes. The change would apply a rule on "constructive sales" to digital assets.

Sen. Pat Toomey introduced a bill to protect payment for order flow. The bill from the ranking Republican on the Senate Banking Committee would prevent the SEC from banning the practice made famous — or infamous — by Robinhood.

Why it took so long for MoneyLion to list its shares. Well, SPACs are complicated.

Making moves

George Gresham has joined Green Dot as CFO and COO. He was previously on the board of Green Dot Corp. and Green Dot Bank from 2016 to 2019 and was CFO at NetSpend from 2010 to 2013.

Deal flow

Drip Capital raised $175 million. The trade finance startup was backed by TI Platform and others.

Swap raised $25 million. The Sao Paolo-based banking-as-a-service startup is backed by Tiger Global.


It's that adaptability that keeps clients loyal to Apex, and helps them grow in the highly competitive and turbulent world of democratized finance. As of June 2021, 11 million of Apex's customers were aged 18-40 — but as others start to see the potential in this new and growing space, they're starting to jump in.

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Data point

223%: That's the price appreciation over 24 hours in Floki Inu, named after Elon Musk's dog, as the latest canine-inspired crypto token to capture traders' attention.

Thanks for reading — see you Tuesday!

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