Robinhood Sees 100% Revenue Jump Spurred by Crypto, Prediction Markets

So why is its stock price down 8%? Online brokerage Robinhood (NASDAQ:HOOD) had a huge third quarter, doubling its revenue and easily beating earnings expectations. However, the stock price was plummeting on Thursday, down about 8% in afternoon trading. What drove the selloff? It was likely due to concerns about its outlook. But let’s look at the impressive Q3 results with all gains calculated year-over-year. Revenue: $1.27B, up 100%. This beat estimates of $1.19B in revenue. Net income: $556M, up271%. Earnings: 61 cents per share,up 259%. This beat estimates of 53 cents per share. The results were strong almost across the board, as the number of investment accounts increased by 11% to 27.9 million. Further, total platform assets surged 119% to $333 billion. In addition, the average revenue per user (ARPU) increased 82% to $191. Further, the new venture into prediction markets is growing rapidly.  In Q3, total event contracts traded more than doubled to 2.3 billion compared to Q2. And in October alone, the first month of Q4, total event contracts traded reached 2.5 billion – already more than all of Q3. Another huge driver for Robinhood is Q3 was revenue from cryptocurrency trading. Overall, transaction-based revenues increased 129% to $730 million. This was fueled primarily driven by crypto revenue of $268 million, up more than 300%. Options revenue was up 50% to $304 million, while equities revenue surged 132% to $86 million. “Q3 was another strong quarter of profitable growth, and we continued to diversify our business, adding two more business lines—Prediction Markets and Bitstamp—that are generating approximately $100 million or more in annualized revenues,” Jason Warnick, Robinhood CFO said. “And Q4 is off to a strong start in October, with record monthly trading volumes across equities, options, prediction markets, and futures, and new highs for margin balances.” Expensive outlook The selloff on Thursday was likely more related to Robinhood’s outlook and perhaps investors macro concerns about markets, crypto in particular. Specifically, the concern was mostly due to higher than anticipated expenses for fiscal 2025. For the full year, Robinhood expects adjusted operating expenses and share-based compensation (SBC) to be approximately $2.28 billion, which is higher than the earlier forecasted range of $2.15 billion to $2.25 billion. This follows Q3, here operating expenses surged 31% to $639 million, driven by marketing and growth investments, and acquisition-related expenses. This came in higher than analysts anticipated. Also, with crypto markets and Bitcoin in a correction, investors may be worried that revenue will be challenged in Q4, and perhaps beyond, as Robinhood generates a lot of income from crypto trading. This was particularly true in Q3 when crypto trading revenue rose 300%. Long term view This really looks like more of a short-term concern. Long term, Robinhood is well positioned for growth, particularly with the booming prediction markets diversifying its revenue. Robinhood stock got several price target upgrades, including Mizuho, which raised it to $172 per share, based in large part on its rapid prediction markets growth. That would be about 32% upside. Robinhood stock is a consensus buy with a $155 price target, which suggests 20% growth. The stock is a tad overvalued trading at 73 times earnings and 70 times forward earnings. So, the selloff may be some profit-taking, waiting for stock to reset lower.