Robinhood’s Way Out of the Woods

These are the kinds of moves investors have hoped can power a fresh wave of interest as the trading mania of last year continues to fade.

But while Robinhood may be building, droves of new accounts have yet to come. Net cumulative funded accounts grew just incrementally to 22.8 million from 22.7 million over the first quarter. Monthly active users declined. Total net revenues fell about 18% from the fourth quarter to the first, and were down more than 40% from a year ago.

Many of these products are in their infancy, so it is too soon to make a judgment about them. But one measuring stick may be the most critical for now: Average revenue per user, or ARPU. That dropped to just $53 in the first quarter. Robinhood on Thursday told analysts that as part of a push toward positive adjusted earnings before interest, taxes, depreciation, and amortization by year-end, it needs to get ARPU to the mid-$80s range. The company is reducing costs too, most notably via an announced trimming of about 9% of full-time staff.

So where does that roughly $30 in additional ARPU come from? Barring an activity or account arises, it may not be crypto enhancements for now. Chief Executive Vlad Tenev told analysts that “at this point, on a stand-alone basis, we actually don’t view wallets as a revenue driver.”

Instead, Robinhood could see a meaningful peruser revenue bump from a passive activity: securities lending. So-called fully-paid securities lending enables customers to loan out their holdings, sometimes to institutions that want to use them for short selling, to generate some additional income. The more demand there is for shares to borrow, the more Robinhood and its customers can earn.

Robinhood says this offering, which it recently began rolling out to a small set of customers, has the potential to eventually add about one to two times as much as the revenue of its current margin securities lending business. That alone could add several dollars to ARPU, even if users didn’t trade or invest any more than they do today.

Another ARPU driver the company cited is continuing enhancement that will benefit advanced users. Notably, option trading, including by more-sophisticated traders, has been Robinhood’s steadiest transaction revenue generator—so anything to better monetize or engage options traders might deliver a relatively predictable boost. Options-driven transaction revenue of $127 million in the first quarter was still two-thirds of the peak level seen in the first quarter of 2021. By contrast, equities and crypto revenues were at about one-fourth of their respective quarterly high-water marks .

Then there are rising interest rates and the benefits of good old cash. Higher rates may be bad news for crypto prices and highflying stocks, but they can be great for brokers in many ways. Higher rates can increase Robinhood’s ability to generate interest revenue from cash balances, and drive higher pricing on margin loans. Robinhood can also attract more of a customer’s assets with high yields on uninvested cashor earn by monetizing instant withdrawals if customers are in a hurry to move cash around.

Securities lending and cash strategies may not have been what a lot of people had in mind when Robinhood went public in the midst of a retail trading bonanza. But for the time being, these seemingly boring things may be some of the company’s most exciting opportunities to turn around its beleaguered stock.

Write to Telis Demos at telis.demos@wsj.com