WSJ on Robinhood's Interest Income
The Wall Street Journal writes, "Robinhood Learns to Nab Interest Income." The article states, "Though customer trading remains the bulk of Robinhood's revenue, the upswing in interest rates is helping show some progress on what the firm can do while many small traders are on the sidelines. Interest earned on corporate cash and investments and segregated customer cash and securities went from $2 million in the first quarter to $16 million. Margin interest revenue also rose sequentially, even as balances dipped lower. Securities lending income didn't rise, but the company just began rolling out its expanded program for customers to earn from lending out their stock." It continues, "A big asset for the company is its cash pile. Robinhood said that interest-earning assets were $16 billion at the end of the second quarter. That cash hoard is partly a legacy of the time when Robinhood had to scramble to meet its obligations in early 2021 during the meme-stock surge. But the company says it now uses very little of its corporate cash to run the business on a typical day. It has also swept up a balance of over $2 billion in customer cash as of the second quarter. Robinhood estimated it is realizing about $40 million of additional annualized revenue for every quarter-point increase in interest rates by the Federal Reserve." The Journal brief adds, "Higher rates are also giving Robinhood the opportunity to retain and attract customer cash. Even though net cumulative funded accounts grew just slightly sequentially, to 22.9 million, net deposits grew at a 22% annualized rate over the second quarter. Cash sorting among brokerage customers who are seeking out the highest rate can be a risk and drive up funding costs -- but it is also an opportunity for the likes of Robinhood to gather cash by offering attractive rates, shifting more of its business away from dependence on high trading levels."
