Robinhood, Coinbase Find Haven In Interest Earnings Amid Market Disruption

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    (Reuters) – For US online trading companies, an often-overlooked financial measure could act as a bulwark against dwindling demand in the third quarter, analysts said.

    The US Federal Reserve’s rate hikes are expected to boost interest income for commission-free brokerage Robinhood Markets Inc and cryptocurrency exchange Coinbase Global Inc.

    “While rates were low and crypto markets were hot, investors paid little attention to[interest income]but it is becoming an increasingly important driver of Coinbase’s revenue stream,” Barclays analysts wrote.

    “The effect of higher interest rates will flow through earnings at a pace slightly better than previously forecast,” JP Morgan analysts said of Robinhood.

    THE CONTEXT

    Central banks around the world have made an effort to cool the economy in an effort to curb inflation, which despite several rate hikes this year is still raging at levels not seen in four decades.

    That has led to a stunning reversal in fortunes for lenders who were pressured by near-zero interest rates last year.

    Robinhood allows eligible customers to borrow money to buy securities and charge interest on the debt.

    Analysts say the feature, called “margin investing,” could also be used to drive larger subscriptions to its premium Robinhood Gold, as members can borrow much cheaper than the standard rate.

    “We’re seeing Robinhood ramping up rates to levels not so different from peers,” JP Morgan added.

    On the other hand, Coinbase earns interest on reserves that back USD Coin (USDC), the second largest stablecoin by market capitalization, which it issues together with crypto firm Circle.

    It also earns interest on bitcoin-backed loans it makes to customers.

    Analysts expect net interest income at Robinhood to grow 65 percent, while Coinbase’s subscription and services revenue, including interest income, is estimated to grow 28 percent, according to IBES data at Refinitiv.

    However, the companies are also expected to report a decline in total sales in the third quarter as inflation-ridden retailers resorted to cash rather than betting on risky assets.

    Robinhood will report third quarter results after the bell on Wednesday, while Coinbase will follow suit on Thursday.

    THE RAW MATERIALS

    Refinitiv company’s revenue estimate Refinitiv

    EPS/(loss per

    share) estimate

    Coinbase $658.70m (down 47 percent year-over-year) (2.40)

    Robinhood $355.27 million (-3 percent yoy) (31 cents)

    WALL STREET SENTIMENT

    ** Coinbase Global: 14 out of 28 brokers rate the stock as “buy” or higher, 10 “hold” and four “sell”; their median PT is $87

    ** Robinhood Markets: Four out of 15 brokers rate the stock as “buy” or higher, seven “hold” and four “sell”; their median PT is $11

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