Robinhood Markets Inc. stock price’s rollercoaster provides more fuel for the meme stock debate

Those who watch the Robinhood Markets Inc stock price closely might be forgiven for getting a little dizzy in past twenty-four hours – it’s certainly been a wild ride.

Robinhood share prices rose 6.3% to $18.97 yesterday, over 6%, during extended US trading hours, to close at $17.99 on Wednesday. They then dipped all the way down to $17.60, Robinhood’s opening price today, before rallying slightly to $17.85.

And this is after Tuesday’s similar stock price gymnastics, when share prices rose from a $17.75 opening all the way up to $18.26, only to close lower again at $17.99.

What has caused all the volatility? And what does it mean?

Robinhood beats expectations with stellar earnings

Robinhood Markets Inc. reported its Q1 2024 earnings on May 8th yesterday, and knocked it out of the park.

The company surprised analysts and investors alike with a huge surge in revenue and profits, largely due to the high cryptocurrency prices experienced during the quarter.

After a $511 million loss in net income reported in Q1 of 2023, the company reported net income profits of $157 million yesterday.

The company also reported “record revenues of $618 million, up 40% year-over-year, and record GAAP diluted EPS of $0.18 [plus] record net deposits of $11.2 billion, including net positive transfers from every major incumbent brokerage firm.”

Unsurprisingly, this caused the Robinhood stock price to pop the 6.3% after the earnings were reported.

But, if this is the case, then how come the Robinhood is also down almost 1% this morning, at the time of this article’s writing?

SEC trouble lingers

On May 4^th, Robinhood received a ‘Wells Notice’ from US regulator the Securities and Exchange Commission (SEC), which recommended the SEC file an enforcement action against Robinhood Crypto.

A ‘Wells Notice’ is formal communication from the SEC informing a company that it has been the subject of a regulatory investigation which is not ongoing, but has already concluded.

The findings of said investigation will be made public by the regulator shortly, but prior to this, the company can enter into discussions with the SEC about it – the start of which process is the Wells Notice. Essentially, a Wells Notice is something that can strike fear into the heart of any company receiving it – and its investors too.

As Robinhood notes on its website:

The potential action may involve a civil injunctive action, public administrative proceeding, and/or a cease-and-desist proceeding and may seek remedies that include an injunction, a cease-and-desist order, disgorgement, pre-judgment interest, civil money penalties, and censure, revocation, and limitations on activities.”

What it all means

Robinhood’s recent stock price volatility is perhaps the perfect summary of many of the pros and cons of being considered a ‘meme stock’ or, at the very least, associated with them: from crypto prices to legitimacy, to regulatory scrutiny.

What is a meme stock?

A meme stock is a company with a loyal fan base known for being active on social media. The company’s most defining characteristic usually is the social media chatter (and, yes, memes) which surround them.

Many people believe that meme stocks are essentially all hype, or all talk, and no action – that as companies themselves, meme stocks have little to move their share price that isn’t social media chatter.

But Robinhood’s latest financial results strike at the very heart of this meme stock debate – as do Reddit’s recent first results as a public company, and GameStop’s as well. All reported better-than-expected revenues and profits.

The disadvantages of meme stocks

Another common aspect of companies considered ‘meme stocks’ are the close relationships they often share with cryptocurrencies. Robinhood, for instance, is a zero-commission trading platform and app that allows traders exposure to cryptos, including Bitcoin.

This is exactly where the bulk of Robinhood’s stellar earnings seem to have come from in the last quarter – the high Bitcoin and crypto prices experienced in Q1 this year, thanks to the approval of Bitcoin ETFs.

It also explains why Robinhood’s stock price didn’t shoot up more after the earnings report. After all, Bitcoin and other cryptocurrencies have had a far more bearish time of late, after the halving last month.

Lastly, Robinhood seems to have gained the SEC’s attention specifically for its crypto business – and that too is a known downside. If there is anything that seems guaranteed to get extra regulatory scrutiny these days in the US, its cryptocurrencies and all those associated with them.

The post Robinhood Markets Inc. stock price's rollercoaster provides more fuel for the meme stock debate appeared first on Invezz