Robinhood misses quarterly profit estimates as softer crypto activity outweighs robust trading

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

Shares of the company fell 4.2 per cent in after-hours trading.

The trading platform's transaction-based revenue from cryptocurrencies fell 55 per cent 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 per cent year to date as geopolitical tensions and rising oil prices add to market uncertainty.

Meanwhile, Middle East tensions rattled markets globally, prompting investors to buy, sell or rebalance positions more frequently.

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

The company's operating expenses rose 16 per cent to $739 million, driven by higher credit-loss provisions, spending on new businesses such as Trump Accounts and Rothera, and increased marketing.

Robinhood CFO Shiv Verma said that prediction markets emerged as 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 Menlo Park, California-based company reported a profit of 51 cents per share, below analysts' expectations of a profit of 55 cents per share, according to estimates compiled by LSEG.