Robinhood lost its luster on Wall Street as its increase in monthly active users and gross stalled out and its margins crumbled. Rising interest rates besides drove many investors away from the riskier “ meme stocks “ and cryptocurrencies that had driven much of its pandemic-era increase, and that shifting opinion besides made unprofitable companies like Robinhood look a lot less attractive .
I covered a lot of Robinhood ‘s problems in an article published in early May, and I concluded that it was still besides bad to own in a growling bear market. But this time, I want to dive deeper into its laughably gamey stock-based compensation ( SBC ) expenses — and why they ‘ll prevent it from generating any near-term profits .
How much has Robinhood been spending on SBC?
It ‘s not unusual for an unprofitable company to subsidize the salaries it pays cardinal employees with big stock bonuses. however, those companies often exclude SBC expenses from their function and net profits on a non-generally accept report principles ( non-GAAP ) basis by calling them “ erstwhile ” costs.
even SBC expenses are normally recurring costs, and companies that rely excessively heavy on them will keep diluting their shareholders. here ‘s how much Robinhood exhausted on SBC expenses over the past year :
|Metric||FY 2021||Q1 2022|
|Revenue||$ 1.82 billion||$ 299 million|
|SBC expenses||$ 1.57 billion||$ 220 million|
|SBC as percentage of revenue||
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|Net income||( $ 3.69 billion )||( $ 392 million )|
Robinhood ‘s SBC expenses were then high because it paid huge stock bonuses to its co-founders and other executives after its IPO. In 2021, CEO and co-founder Vlad Tenev received $ 794 million of his full recompense via stock awards. Baiju Bhatt, the company ‘s head creative officer and co-founder, received $ 593 million in stock certificate awards .
But in May 2021, their display panel approved a batch that would unlock flush bigger stock awards for Tenev and Bhatt if Robinhood ‘s breed price rises into the $ 120 to $ 300 range. It seems doubtful that the stock will ever reach those levels, but the decision to allocate a bombastic helping of its IPO shares to its own investors — in an apparent bid to make itself a “ meme stock ” — might have been made with those gallant prices in heed .
Will Robinhood ever reduce its SBC expenses?
To understand how absurd Robinhood ‘s SBC expenses are, consider the comparable expenses at other fintech companies. In their latest fiscal years, Coinbase Global ( COIN -9.66 % ) and Block ( SQ -4.96 % ) exhausted merely 10 % and 3 % of their revenues, respectively, on SBC expenses .
At the end of 2021, Robinhood predicted that its total stock-based recompense would decline by 35 % to 40 % in fiscal 2022. But after its blue first-quarter report, it predicted its stock-based compensation would decline by approximately 42 % to 47 % for the year as it reduced its head count .
That might sound like a step in the right management, but analysts besides expect Robinhood ‘s tax income to decline by 16 % to $ 1.52 billion this year as its growth stalls out. Shaving 47 % off of its SBC expenses would only bring them down to $ 830 million — or 55 % of its anticipate tax income .
Another major reason to avoid Robinhood
Robinhood ‘s IPO and subsequent standard bonuses turned its co-founders into billionaires. But that scheme besides badly diluted its shareholders : Its sum number of weighted-average shares increased 76 % consecutive and jumped 276 % year over year in the first quarter .
Robinhood ‘s broth now trades more than 70 % below its IPO price, and its senior high school SBC expenses make it an even less appeal investment. I personally believe the best consequence for Robinhood right now would be a buyout — but a takeover would besides make its billionaire founders even richer.