Robinhood Markets rose in morning trade on Thursday after reporting record first-quarter revenue and profit thanks to mom-and-pop investors returning to its commission-free platform to trade cryptocurrencies.

Retail trading has been on the road to recovery since bitcoin and U.S. stocks scaled all-time highs earlier this year, helped by bets of a soft landing for the economy and expectations of interest rate cuts from the Federal Reserve.

The approval of spot bitcoin ETFs in the U.S. in January has also powered sentiment.

Robinhood crushed Wall Street expectations on Wednesday with a 40% surge in revenue and a profit of 18 cents per share, compared with a loss of 57 cents a year ago.

Its cryptocurrency revenue more than tripled to $126 million. Monthly active users also hit a near two-year high.

"Crypto was a primary driver of the difference between reported numbers and our estimates, with an exceptionally strong March," analysts at J.P.Morgan said.

"It looks like the unusual March is not repeating in April, suggesting it was more one-time than indicative of market share gains."

Robinhood was at the center of the 2021 retail trading frenzy, when people used the platform to pump money into so-called "meme stocks" during lockdowns. Its fortunes later turned as household budgets came under pressure from decades-high inflation and rising borrowing costs.

Clouding some optimism around the earnings report was the company's disclosure from earlier this week that its crypto trading arm had received a so-called Wells notice from the U.S. SEC over tokens traded on its platform, indicating potential enforcement action against the company.

"Timeline or scenarios are difficult to estimate but we will wait to see what the enforcement action looks like," BofA analysts said.

Robinhood shares pared premarket gains and were last up 2% in morning trading amid muted broader U.S. market sentiment.

(Reporting by Manya Saini in Bengaluru; Editing by Devika Syamnath)