Updated: Robinhood profit falls short of expectations as cryptocurrency trading slows

Analyst comments were added in paragraphs 8 and 9, along with a chart.

Prakhar Srivastava/Rishab Shaju

Reuters, October 27 - Robinhood Markets (HOOD.O) posted third-quarter profits that missed Wall Street expectations on Tuesday, as a slowdown in cryptocurrency trading and higher costs offset the positive impact of a strong performance in options and prediction markets.

The Menlo Park, California-based company's shares fell 7% in after-hours trading.

The platform's revenue from cryptocurrency trading fell 55% year-over-year to $120 million.

Since the start of this year, volatility and sustained outflows have put pressure on the cryptocurrency market, as inflationary pressures and rising interest rates have made bonds and other traditional investments more attractive than speculative assets.

Bitcoin, the world's largest cryptocurrency, has declined by as much as 8% so far this year, with geopolitical tensions and rising oil prices further increasing market uncertainty.

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Options and event contracts offset weakness in cryptocurrencies

Robinhood's overall transaction-based revenue grew about 19% to $867 million, mainly driven by a more than six-fold increase in event contract revenue and a 31% jump in options revenue.

However, Bill Birmingham, Head of Research at REX Financial, noted that revenue growth lagged behind the rise in contract trading volumes, indicating growth is increasingly concentrated in a few key areas.

"Prediction markets are increasingly becoming a second outlet for the same group of core active traders, rather than a channel for attracting new customers," Birmingham said, adding that some trading volume may reflect shifts from existing trading activities rather than incremental business.

However, Robinhood Chief Financial Officer Shiv Verma emphasized that prediction markets remain a key growth driver for the company.

"Prediction markets are now almost a $500 million-a-year business with extremely strong growth momentum, and it has been less than two years since we launched this — it was introduced at the start of the 2024 election cycle," Verma told reporters on a conference call.

He said that both sports and non-sports event contracts are seeing strong growth, with non-sports contracts accounting for a higher share of overall trading volume.

In the three months ending September 30, the company’s operating expenses rose 16% to $739 million, mainly driven by higher credit loss provisions, investments in new businesses such as "Trump Account" and "Rotherla", and increased marketing spending.

According to estimates compiled by London Stock Exchange Group (LSEG), Robinhood reported earnings per share of 51 cents, missing analysts’ forecast of 55 cents per share.

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