In May 2022, Robinhood's (HOOD -1.10%) CEO Vlad Tenev told analysts and investors that the online, commission-free brokerage would be able to return to positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis by the fourth quarter of 2022.
At the time, Robinhood had been struggling as the market was getting crushed and retail investors were losing faith.
Not only did Robinhood achieve its goal one quarter ahead of schedule, but it grew adjusted EBITDA to $82 million in the fourth quarter of 2022. Now, the big question is, can the company keep riding the momentum and achieve actual profitability this year? Let's take a look.
Revenue and expense projections
Tenev, along with Robinhood co-founder Baiju Bhatt, announced on the company's fourth-quarter earnings call that they would cancel $500 million of their upcoming combined share-based compensation (SBC).
Image source: Getty Images.
SBC has been tough for many up-and-coming tech companies as it greatly increases expenses, even though it is not a recurring expense forever, and also dilutes shareholders. In cancelling the SBC, Robinhood will realize $50 million in lower operating costs starting in the second quarter of the year and will reduce the company's fully diluted share count. Still, SBC is expected to be about $510 million this year at the midpoint of the company's guidance, not including a one-time noncash charge.
Robinhood is also guiding for operating expenses to come in around $1.45 billion for 2023, which brings operating expenses and SBC to about $1.95 billion. On the revenue side, management's guidance implies full-year revenue in the $1.6 billion to $1.7 billion range, which left some analysts on the call wondering how the company might close the gap.
Ramping up products
Like many tech companies early on, Robinhood grew incredibly fast and, despite declines in 2022, still has 11.4 million monthly active users. But as the market has focused more on profitability, the company is looking to maximize its relationships with its most engaged, profitable customers and grow deposits, which can be invested into interest-earning assets.
Robinhood has already made some good progress in rolling out products that diversify its revenue. This includes its Robinhood Gold subscription product, which grew by 50,000 subscribers in the fourth quarter, and its securities lending product, which now has a $30 million annual recurring revenue run rate.
Robinhood also recently rolled out its Robinhood crypto wallet, which allows investors to custody crypto, and Robinhood individual retirement accounts (IRAs) that have a 1% match, which is the first non-employer IRA to offer a built-in match. Finally, Robinhood is looking to begin its international expansion efforts and launch in the United Kingdom by year-end. All of these efforts are intended to help grow client assets.
"You're going to see us launch products, you're going to see us iterate on those products and just keep driving for improvement. And I think when you add all that together, it leads to revenue growth over time," Robinhood's CFO Jason Warnick said on the earnings call.
Can Robinhood get it done?
Nobody has a crystal ball, so it remains to be seen whether or not Robinhood can achieve profitability this year. Some of it will likely depend on how much retail investing interest improves.
But the more important thing to watch is really how much progress Robinhood makes in engaging customers with these new products, as they are key to the company's success. The company needs people enrolling in IRAs, signing up for Robinhood Gold accounts, utilizing the crypto wallet, and continuing to participate in securities lending.
The company may not reach profitability if the market hits a snag, but if it is meaningfully increasing engagement around its most profitable customers and growing deposit balances, then that is a very good sign.
