According to analysts, an often overlooked financial metric for US online trading companies could act as a shield against the slowdown in demand in the third quarter.
A hike in US Federal Reserve rates is 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 important driver for Coinbase’s revenue stream,” wrote Barclays analysts.
“The impact of higher rates will flow through earnings at a slightly better rate than previously forecast,” analysts at JPMorgan said of Robinhood.
Context
Central banks around the world are scrambling to cool the economy in an effort to tame inflation, which, despite several rate hikes this year, is still raging at levels not seen in four decades.
This has led to a surprising reversal of fortunes for lenders who were squeezed by nearly zero interest rates last year.
Robinhood allows eligible customers to borrow money to purchase securities and charge interest on the loan.
Analysts say the feature, called “margin investing,” could also be used to gain more subscriptions to its premium Robinhood Gold because members can borrow money much cheaper than the standard rate.
“We see Robinhood raising rates to a level that’s no different from peers,” JPMorgan said.
Coinbase, on the other hand, earns interest on reserves backing USD Coin (USDC), the second largest stablecoin by market capitalization, which it issues jointly with crypto firm Circle.
It also earns interest on bitcoin-backed loans it offers to customers.
According to IBES data at Refinitiv, analysts expect Robinhood’s net interest revenue to grow 65%, while Coinbase’s subscription and services revenue, which includes interest income, is projected to grow 28%.
However, the companies are also expected to report a decline in overall third quarter revenue, as inflation-hit retail traders took refuge in cash instead of betting on riskier assets.
Robinhood is due to report third-quarter results after the bell on Wednesday, while Coinbase is due on Thursday.
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