By Sri Hari N S and Niket Nishant
(Reuters) -Online brokerage Robinhood (NASDAQ:HOOD) Markets beat estimates for first-quarter profit on Wednesday, thanks to robust crypto trading volumes and rate hikes that boosted its net interest revenue.
The approval of the first spot bitcoin ETFs in the U.S. in January boosted sentiment towards the crypto industry, which had been bruised by several high-profile collapses over the past two years.
The company however disclosed earlier this week that its U.S. crypto trading arm received a so-called Wells notice from the SEC over tokens traded on its platform.
The notice is issued when the regulator plans to bring enforcement action against a company.
"The Wells Notice clouds the future of this income stream," said Lauren Ashcraft, financial services analyst at Emarketer.
But companies generally have an opportunity to respond to a Wells Notice and rectify situations, so Robinhood "still potentially has a chance to maintain this significant source of revenue," she added.
Robinhood said it was disappointed with the notice but would contest the SEC's claims and, if necessary, fight the regulator in court.
"We've run our crypto business very carefully. We've been very selective about the coins we offer, and we've not offered services that have been criticized by the SEC," CFO Jason Warnick said.
STRONG TRADING IN OPTIONS, EQUITIES
Trading in equities and options also held up, thanks to hopes of a soft landing that have encouraged retail traders to wade back into the market, allowing the Menlo Park, California-based company to rake in 59% higher transaction-based revenue.
The momentum has continued in the second quarter despite some uncertainty around the timing of rate cuts by the Federal Reserve, Warnick said.
Net interest revenue jumped 22% to $254 million, helped by the Federal Reserve's policy tightening that has allowed companies to earn more from their deposits and bond investments.
Rate hikes also let brokers like Robinhood, which allow traders to borrow against their investments, charge higher interest on such loans.
The company reported a profit of $157 million or 18 cents per share for the three months ended March 31, compared with expectations of 6 cents per share, according to LSEG. It had reported a loss of $511 million or 57 cents per share in the same quarter last year.
Net revenues soared 40% to $618 million. Shares climbed nearly 3% after the bell.