Stock- and crypto-trading platform Robinhood Markets Inc. on Wednesday said its board had cleared the company to pursue repurchasing shares bought by Sam Bankman-Fried, founder of the cryptocurrency exchange FTX that collapsed last year.
Bankman-Fried had amassed a stake of more than 7% in Robinhood
or more than 50 million shares, through Emergent Fidelity Technologies, a holding company he co-founded. Analysts have raised questions about the timing of the liquidation of that stake as Bankman-Fried contends with a variety of fraud charges following FTX’s implosion.
“We think this repurchase will be accretive over time and removes a distraction for shareholders,” Robinhood Chief Executive Vlad Tenev said during the company’s earnings call Wednesday. “Since there isn’t much precedent for situations like these, we can’t predict how long this will take.”
Prior to the call, Jason Warnick, Robinhood’s chief financial officer, said in Robinhood’s earnings release that “our board authorized us to pursue purchasing most or all of our shares that Emergent Fidelity Technologies bought in May 2022. The proposed share purchase underscores the confidence the board of directors and management team have in our business.”
The Justice Department last month said authorities had seized those shares in connection with the fraud charges against Bankman-Fried. Emergent Fidelity Technologies filed for bankruptcy protection this month.
Shares of Robinhood rose 5.5% in after-hours trading on Wednesday.
Still, Robinhood reported fourth-quarter results that missed expectations, accentuated by a “processing error” that cost the platform millions and also cost executives their cash bonuses. But the company’s co-founders — Tenev and Baiju Bhatt — said they canceled nearly $500 million in share-based compensation to “ensure the company has as many resources as possible” to reward shareholders.
The decision affects the co-founders’ 2021 pre-IPO restricted stock unit awards, which amounted to 35.5 million unvested shares. Executives said the move would lower Robinhood’s operating costs by up to $50 million per quarter, starting in the second quarter.
The trading platform reported a fourth-quarter net loss of $166 million, or 19 cents a share, compared with a loss of $423 million, or 49 cents a share, in the same quarter a year earlier. Revenue rose 5% to $380 million, compared with $363 million in the prior-year quarter.
Analysts polled by FactSet expected a loss of 15 cents per share from Robinhood, on revenue of $396 million.
During the call, Warnick also said that a pharma company, Cosmos Health Inc.
executed a 1-for-25 stock reverse stock split on Dec. 16, which launched shares of that company higher. He said a “processing error caused us to sell shares short into the market,” leading to a loss of $57 million as Robinhood bought back those shares while the stock rose.
“It’s important for us to build a culture of accountability,” Tenev said during the call. “So following this event, I made the decision to eliminate the executive team’s 2022 cash bonuses.”
Net cumulative funded accounts — or accounts that users put money into — came in at 23 million, up from the prior quarter. Transaction-based revenue fell 30% to $186 million. Net interest revenue jumped 165% to $167 million, aided by rising interest rates.
Robinhood reported as recession fears still weigh on stock trading, and after a vast drop in cryptocurrency prices and more apprehension about digital assets following the collapse of crypto exchange FTX. However, management said that customer assets had rebounded with the markets last month.
Citigroup analyst Christopher Allen said in December that a “sustained move higher in equity markets” would be needed to accelerate trading activity on Robinhood. The S&P 500
has fallen 8.6% over the past 12 months.
After 2021’s meme-stock boom drew more people toward stock trading, Robinhood has tried to broaden its offerings, including advanced charts, a crypto wallet and retirement-savings services. The company last month formed Sherwood Media, a financial-media outlet.
Robinhood stock has fallen 21.4% over the past 12 months.