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Robinhood can still grow in face of interest rate cuts, CEO says

Robinhood (HOOD) co-founder and CEO Vlad Tenev is brushing aside some concerns on the Street that Fed rate cuts will make it tougher for his business to perform in 2025.

"If you remember, we went public in a zero-rate environment, and we had done quite well in the zero-rate environment. Transaction volume [was] positive, and we were growing 300% to 400% per year," Tenev told Yahoo Finance at the Goldman Sachs Communacopia and Technology Conference on Tuesday.

Robinhood told analysts on its second quarter earnings call that a 25 basis point rate cut from the Fed would result in a $40 million drop in revenue. The revenue decline reflects earning less on interest-bearing accounts.

Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards

Tenev contended the company's deeper push into crypto (including the acquisition of the Bitstamp exchange), its new credit card offering, and the addition of wealth management services will help it withstand a lower-rate environment.

Lower rates may spur an increase in trading among retail investors on the platform too. "And so I think, on balance, the business will continue to do well," he said.

The Street is a little less certain, however.

"While management suggests the potential upside to transaction revenue will more than offset this decline in interest-related revenue as a 'natural hedge,' we’re not as convinced," JPMorgan analyst Ken Worthington said in a recent client note.

Continued Worthington, "The current trading environment is highly sensitive to heightened volatility with macro pressures like rate cuts and geopolitical events like the US election looming; as such, engagement and performance is tough to gauge especially across retail. Furthermore, September is historically one of the worst performance months for the S&P 500 which will drag customer performance and our understanding is that retail generally does not like to trade underwater."

The analyst has an Underweight rating on Robinhood, the equivalent of a Sell.

The dueling viewpoints are about to be put to the test.

WASHINGTON, DC - JULY 31: Federal Reserve Chairman Jerome Powell takes a question from a reporter at a news conference following a Federal Open Market Committee meeting at the William McChesney Martin Jr. Federal Reserve Board Building on July 31, 2024 in Washington, DC. Powell spoke to members of the media after the Federal Reserve held short-term interest rates where they are with broad expectations that the rate with drop in September. (Photo by Andrew Harnik/Getty Images)
Federal Reserve Chairman Jerome Powell takes a question from a reporter following a Federal Open Market Committee meeting on July 31, 2024, in Washington, D.C. (Andrew Harnik/Getty Images) (Andrew Harnik via Getty Images)

The Fed has widely telegraphed that its first rate cut in several years will be on Sept. 18 as it looks to stabilize an economy that's beginning to slow. Goldman Sachs chief economist Jan Hatzius told Yahoo Finance at the conference he is looking for a series of rate cuts from the Fed.

Robinhood has been able to thrive in the higher-rate environment as a result of its cost cuts and new product releases.

The company reported second quarter revenue grew 40% over last year to $682 million. Net earnings improved sharply to $0.21 a share from $0.03 a year ago.

Robinhood shares are up 50% year to date, outperforming the S&P 500's 15% advance. The stock is down 15% in the last three months, however, as concerns about rate cuts and the macro environment came into view.

Read more coverage of the 2024 Goldman Sachs Communacopia and technology conference:

Three times each week, I field insight-filled conversations with the biggest names in business and markets on Yahoo Finance's Opening Bid podcast. Find more episodes on our video hub. Watch on your preferred streaming service. Or listen and subscribe on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.

In the Opening Bid episode below, Affirm (AFRM) founder and CEO Max Levchin takes you inside his plans to create a payments powerhouse.

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.

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