Robinhood profit misses estimates as crypto trading slows

Oct 27 — Robinhood Markets missed Wall Street estimates for third-quarter profit on Tuesday, ​as slower cryptocurrency trading and higher expenses overshadowed strong activity in options and prediction markets.

Shares of the Menlo Park, California-based company fell 7% in after-hours ‌trading.

The trading platform's transaction-based revenue from cryptocurrencies fell 55% to $120 million from a year earlier.

Crypto markets have come under ⁠pressure this year amid heightened volatility and ​persistent outflows, as inflationary pressures and ⁠higher interest rates make bonds and other traditional investments more attractive than speculative assets.

Bitcoin, ‌the world's largest cryptocurrency, has ‌fallen as much as 8% year to date as geopolitical tensions and ⁠rising oil prices add to market uncertainty.

OPTIONS, EVENT ⁠CONTRACTS OFFSET CRYPTO SLUMP

Robinhood's overall transaction-based revenue rose about 19% to $867 million, driven by a more than sixfold increase in event-contracts revenue and a 31% jump in options revenue.

However, revenue growth lagged the increase in trading contracts, suggesting that growth was becoming more concentrated in a few key areas, said Bill Birmingham, research head ‌at REX Financial.

"Prediction markets are becoming a second outlet for ​the same core active traders rather than a funnel for new customers," Birmingham said, adding that some of the volume may reflect a shift from existing trading activity rather than incremental business.

Robinhood CFO Shiv Verma, however, emphasized that prediction markets was an important growth driver for the company.

"Prediction markets is almost a $500-million-a-year business already, and so growing incredibly nicely, and it's less than two years old because it ​came out at the start of the 2024 election," Verma told journalists over a call.

He said ‌both sports and ‌non-sports event contracts ⁠were growing strongly, with non-sports contracts accounting for a larger share of overall trading volume.

The company's operating expenses rose 16% to $739 million for the three months ended September 30, driven by higher credit-loss provisions, spending on new businesses such as Trump Accounts and Rothera, ‌and increased marketing.

Robinhood posted a ​profit of 51 cents per share, missing analysts' ‌expectations of a per-share profit ⁠of 55 cents, ​according to estimates compiled by LSEG.

(Reporting by Prakhar Srivastava and Rishab Shaju in Bengaluru; Editing by ​Diti Pujara)

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