The results are in: Robinhood’s losses widened substantially in Q4 as tumbling average user spend hurt trading. The digital broker may be forced to expand its offerings to limit future losses.

• Q4 pretax losses widened to $420 million, compared with a mere $19 million a year before.
• Average revenues per user slumped 39% year over year (YoY) to $64. Robinhood blamed the decline on lower trading volumes for options and equities.
• Despite the troubling bottom-line performance, net revenues increased 14% to $363 million for Q4 and 89% to $1.82 billion for the year.

How we got here: The pandemic led to a flood of new investors in the stock market. Roughly 15% of retail investors in early 2021 traded for the first time in 2020, per a Charles Schwab survey.

• The retail investing boom was fueled by stronger personal savings during the pandemic and greater market volatility.
• The GameStop stock saga in early 2021 and emergence of other “meme stocks” then prolonged the investment craze for commission-free trading apps like eToro, ZuluTrade, and Robinhood.

What now? Robinhood's deepening losses are emblematic of the broader industry: Other publicly listed digital brokers, like eToro and Coinbase, have also posted disappointing results amid a slowdown in investor enthusiasm.

• We predict trading apps will increasingly look for novel ways to benefit from cryptos to reverse falling trading volumes. Robinhood, for example, said in its earnings that it will roll out a crypto wallet in Q1 2022 that would let users directly hold and receive cryptos without having to convert them into fiat currency, potentially encouraging greater trading volume.
• Adding long-term investing options can also maintain user numbers and attract new customers. Robinhood said it will offer retirement accounts by mid-year.
• And incorporating social media elements into trading platforms is crucial to lifting engagement and trading volume.
• Brokers must also offer a wider range of assets to trade, creating a more unified trading experience for users and limiting attrition to competitors’ platforms: Earlier this month, eToro launched a themed premium portfolio that gives investors long-term exposure to stocks and crypto assets within the metaverse industry.