lost $57 million because of a mistake processing shares in a tiny healthcare company in December, an error that cost the broker about 7 cents per share in the fourth quarter. That single mistake, which the company says it corrected quickly, was the difference between Robinhood beating and missing earnings expectations. Robinhood posted a 19-cent loss in the quarter, versus expectations for a 15-cent loss.
Nonetheless, Robinhood (ticker: HOOD) shares were up 5% in after-hours trading. They’re up 30% this year after falling 54% in 2022.
Robinhood’s board also approved plans to buy back 55 million shares originally purchased last year by Emergent Fidelity Technologies, a firm tied to Sam Bankman-Fried, the co-founder and ex-CEO of bankrupt cryptocurrency exchange FTX. “Since there is limited precedent for this type of situation, we cannot predict when, or if, the share purchase will take place,” the company said.
Some of Robinhood’s financial metrics may be impressing investors, despite the error. The company added 50,000 new funded accounts to end the year at 23 million. And for the first time, it made less than half its revenue from transactions, meaning that it is less dependent on the kind of rapid trading by its customers that propelled Robinhood during the meme-stock era. Robinhood benefited from rising interest rates, growing its net interest revenue to $167 million, a 30% sequential gain. The broker has needed to rely on new revenue sources, because traders on its platform have slowed their activity. There were only 11.4 million active users in December, a decline of about 800,000 from the prior quarter. CFO Jason Warnick said on a call with reporters that activity had picked up in January.
The processing error did quick damage to the company’s results, and led CEO Vlad Tenev to cancel 2022 bonuses for top executives. It happened on Dec. 16, when the company mishandled a 1-for-25 reverse stock split by a company called Cosmo Health (COSM), which describes itself as a “nutriceuticals” company and has a market cap of about $50 million. Robinhood shareholders were able to trade shares they didn’t actually own, causing Robinhood to hold a temporary short position in the stock. As the company attempted to cover that short, the shares spiked, forcing the loss. On that day shares opened at $3.85 and rose as high as $23.84.
“We process hundreds of corporate actions each quarter, and this one was an outlier they got past us,” Warnick said. “We’re taking it incredibly seriously.”
Write to Avi Salzman at email@example.com