Key takeaways
- Robinhood stock plunged 7% after Q3 earnings missed Wall Street expectations
- Cryptocurrency revenue dropped 55% year over year to $120 million
- Prediction markets emerged as a major growth driver, generating $173 million in revenue
Robinhood Markets shares tumbled approximately 7% in after-hours trading on Tuesday, after the brokerage reported disappointing third-quarter earnings despite generating record revenue. A sharp decline in cryptocurrency trading revenue and rising operating expenses overshadowed strong growth in options trading and prediction markets.
The company reported $1.42 billion in quarterly revenue, which represents a 12% increase from the previous year. However, the figure narrowly missed Wall Street expectations of approximately $1.43 billion to $1.44 billion.
(Source: investors.robinhood.com)
Robinhood's earnings per share (EPS) fell 16% year over year to $0.51, missing analysts' expectations of $0.55. Meanwhile, net income declined 14% to $476 million.
Crypto Revenue Plunges 55% as Expenses Rise
One of the biggest disappointments in Robinhood's earnings report was its cryptocurrency business, which recorded a 55% year-over-year revenue decline to $120 million.
Crypto trading volumes also weakened, with total notional trading volume falling 38% to $50 billion. The slowdown reflected weaker crypto trading activity, even as the brokerage expanded its digital asset offerings.
Robinhood also faced mounting costs. Operating expenses increased 16% to $739 million, driven by higher credit-loss provisions, marketing expenses, and investments in expanding the business. Net interest revenue added to the pressure after declining 9% year over year to $415 million.
Prediction Markets Deliver Explosive Growth
Despite the earnings disappointment, Robinhood reported impressive growth across several business segments. Prediction markets were a particularly strong performer, and generated $173 million in event-contract revenue. This is more than sixfold year-over-year growth.
Options trading revenue increased 31% to $399 million, while equities trading revenue surged 41% to $121 million. The company also reported record Robinhood Gold subscriptions, which reached 5.2 million members. This is up 34% from the previous year.
Meanwhile, total platform assets climbed 19% to $396 billion, supported by continued customer deposits and higher equity valuations.
What's Next for Robinhood Stock?
Robinhood's disappointing earnings have raised questions about whether its growing businesses can offset weakening crypto trading revenue and rising expenses.
Prediction markets have become an important growth opportunity, although there are still some concerns about whether the segment can sustain its momentum and attract new customers rather than simply redirecting existing trading activity.
While Robinhood expands its financial services ecosystem, investors will likely focus on profitability, operating costs, and the performance of its cryptocurrency business in the coming quarters.
The approximately 7% after-hours decline suggested that investors were placing more weight on the earnings miss than the company's record quarterly revenue.
