over 2 years ago • 3 mins
Robinhood posted a disappointing earnings update this week, in the trading platform’s first since it listed on the stock market.
What does this mean?
Meme stocks like GameStop and AMC Entertainment may have boosted Robinhood’s bank balance at the start of the year, but last quarter’s revenue – which surged 131% versus the same time last year – had a different headline-grabber to thank: crypto trading drove around 51% of the company’s revenue, up from 17% in the previous quarter.
The future isn’t looking quite so promising, mind you. For one thing, a significant portion of that trading was on dogecoin, which investors – who might be realizing that the one-time joke is no laughing matter – have sent down more than 50% from its May highs. Throw in the fact that summer tends to be a quiet period anyway, and crypto trading – and, by extension, the segment’s revenue – is likely to drop off this quarter.
Why should I care?
For markets: It’s all about those Benjamins.
If cryptocurrency trading does slow down, it’ll impact Robinhood in one of two ways: it’ll either reduce the amount of cash the company generates, or it’ll push those cash flows into a later quarter. Either way, its stock – which investors value by how much cash they think it will generate in the future (discounted back to today) – will be worth less now, which might be why Robinhood’s shares initially fell 10% on Thursday.
The bigger picture: The crypto slowdown is real.
Robinhood is right to be nervous about the crypto market: Nvidia – which reported better-than-expected revenue and profit late on Wednesday – said sales of microchips used for crypto mining last quarter were 30% lower than the chipmaker had been expecting. That suggests there’ll be less enthusiasm for cryptocurrencies themselves going forward, at least in the near term.
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The price of iron ore dropped to a four-month low on Thursday, as China decided that, hey, it is pretty easy being green.
What does this mean?
Iron ore is a major component of steel, which is itself a major component of cars, buildings, and all the other stuff that helps the world keep ticking over. But steel production is also a major pollutant, which might be why a newly eco-conscious China reportedly started cutting back on its steel production last month. And as the world’s biggest user of iron ore, that could leave a serious dent in demand for the metal.
It’s not China’s only cutback lately: the People’s Republic has also been reining in the property market, causing house prices to grow at their slowest pace in six months. That means less incentive to build steel-dependent houses, sending demand for – and the price of – the metal down.
Why should I care?
The bigger picture: Bellwethers speak, investors listen.
Copper – which is used in everything from electronics to construction – has fallen nearly 20% from its May peak too. That’s not a great sign: metals like copper, iron, and steel are seen as economic bellwethers that give an idea of the health of the global economy, since they’re so closely tied to how busy countries are keeping. So if they’re on the decline, it’s not a great sign for things as a whole…
For markets: When it rains, it pours.
That warning sign might be one reason why investors sold off stocks on Thursday morning, but it’s not the only one. The vaccine-dodging delta variant is putting prized economic recoveries at risk across the globe, while data this week showed US and Chinese economic growth is slowing down. Add to that the possibility the US Federal Reserve will pull some of its economic support before too long, and it’s no surprise investors are on edge.
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