Kevin DonovanShares of Robinhood Markets are down about 10% today after the app-based trading platform warned that headwinds which affected third quarter financial results may persist into the next quarter. The report also showed higher-than-expected account attrition due to lower cryptocurrency trading volume in the third quarter.
But there's another factor that is helping push down the price – the unlocking of roughly 49 million conversion shares.
As of noon Wednesday, Robinhood shares were trading at $35.74 per share, down 9.68% versus Tuesday’s $39.57 closing share price. The level is also below its 28 July IPO price of $38 per share and well below the all-time high of $85 reached on 4 August.
Convertible shares
Those IPO option shares became free to trade Wednesday, CFO Jason Warnick said Tuesday on the third quarter earnings conference call.
The 49 million shares unlocked come from the top tranche of convertible notes Robinhood issued prior to going public to raise funds to cover positions during the meme-stock trading frenzy. Warnick added Robinhood currently has a 68 million share float.
“Tomorrow (Wednesday) half of the converts unlock,” Warnick said during the Q&A session of the conference call. “This is something every new IPO has to deal with.” Robinhood filed a Form S-8 Wednesday with the US Securities & Exchange Commission reporting the potential reoffer of over 48.052 million shares of common stock.
The notes convert at a $26.60 strike price and the noteholders have registered to sell the shares at $35.12, based on the average daily closing price of Robinhood shares during its first week of trading.
“There is no change to the fully diluted share count,” said a Robinhood spokesman confirming the statement and note conversion vesting. The converted share resale was subject to a 90-day resale limitation under SEC rule 701(g), Robinhood noted in its S-8 filing Wednesday.
The top tranche represents half of the nearly 98m shares convertible noteholders filed the intent to sell in a Resale S-1 filing on 5 August, as previously reported. The second tranche of convertible debt frees to trade on 12 November, Warrick added on the call.
Third quarter earnings
Robinhood reported net revenue up 35% to $365m (£265m)in the three months ended 30 September. The net loss was $1.32bn, or $2.06 per diluted share, versus a net loss of $11m, or $0.05 per share in the prior year quarter.
Crypto activity declined from record highs in the prior quarter, leading to considerably fewer new funded accounts, a slight decline in net cumulative funded accounts, and lower revenue in Q3 2021 compared with Q2 2021.
Robinhood also anticipates that many of the factors affecting third quarter results, such as seasonal headwinds and lower retail trading activity, may persist.
In the absence of any changes to the market environment or exogenous events, the company believes this may result in quarterly revenues no greater than $325m and full year revenue of less than $1.8bn compared to $959m for 2020.
Additionally, Robinhood expects new funded accounts for the fourth quarter will be roughly in line with the 660,000 opened in the third quarter of 2021.
Read more: Robinhood losses disappoint sending shares down
The difference between stocks and CFDs
The main difference between CFD trading and stock trading is that you don’t own the underlying stock when you trade on an individual stock CFD.
With CFDs, you never actually buy or sell the underlying asset that you’ve chosen to trade. You can still benefit if the market moves in your favour, or make a loss if it moves against you.
However, with traditional stock trading you enter a contract to exchange the legal ownership of the individual shares for money, and you own this equity.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional stock trading, you buy the shares for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks.
CFDs attract overnight costs to hold the trades, (unless you use 1-1 leverage) which makes them more suited to short-term trading opportunities. Stocks are more normally bought and held for longer. You might also pay a stockbroker commission or fees when buying and selling stocks.
