"American influencer brokerage" Robinhood's profits exceeded expectations, while cryptocurrency revenue fell short of expectations, CFO resigns | Earnings report insights

"American influencer brokerage" Robinhood's third-quarter profits exceeded Wall Street expectations, while cryptocurrency revenue fell short. The company announced the resignation plan of Chief Financial Officer (CFO) Jason Warnick and appointed Senior Vice President of Finance and Strategy Shiv Verma as the next CFO.

Key Points from Robinhood's Third Quarter Financial Report

Key Financial Data:

Revenue: Net revenue for the third quarter was $1.27 billion, compared to analyst expectations of $1.21 billion.

EBITDA: Adjusted EBITDA for the third quarter was $742 million, compared to analyst expectations of $726.9 million.

Earnings per Share: $0.61, compared to expectations of $0.53, and $0.17 in the same period last year.

Net Profit: Net profit increased to $556 million, significantly higher than the net profit of $150 million in the same period last year.

ARPU: ARPU (Average Revenue Per User) for the third quarter was $191, compared to analyst expectations of $182.

Monthly Active Users: Monthly active users for the third quarter were 13.8 million, compared to analyst expectations of 13.31 million.

Segment Data:

Transaction-based revenue for the third quarter was $730 million, compared to analyst expectations of $725.8 million.

Cryptocurrency revenue for the third quarter was $268 million, a 300% increase, but below analyst expectations of $287.2 million.

Options revenue for the third quarter was $304 million, compared to analyst expectations of $301.3 million.

After hours on Wednesday, Robinhood's stock price fell more than 3%. The stock has nearly quadrupled this year and was further boosted after being included in the S&P 500 index in the third quarter.

Event Contract Trading

Notably, the trading volume of event contracts on the Robinhood platform surged to 2.3 billion in the third quarter, more than doubling from the previous quarter. In October alone, the trading volume of event contracts surpassed this figure, reaching 2.5 billion. This includes about $25 million from the platform's prediction market business. Robinhood partnered with Kalshi to allow users to buy and sell contracts linked to "yes/no" outcomes of future events.

Recently, Robinhood expanded the scope of event contracts from the initial focus on sports and finance to include politics, entertainment, and technology.

Event contracts still account for a small portion of Robinhood's overall revenue. However, the prediction market business has seen rapid growth in recent weeks: Piper Sandler analysts estimate that trading volume on Kalshi and competing platform Polymarket nearly doubled in October. Analysts also noted that this weekend marked the two most active trading days on these platforms since the 2024 election.

However, these types of prediction market contracts—especially those related to sports and entertainment—have also sparked controversy, as they blur the lines between investment and gambling.

Executive Remarks

Robinhood CEO Vlad Tenev stated in a statement:

"Our team continues to rapidly roll out new products, driving record business performance in the third quarter, and we will not slow down—Prediction Markets are growing rapidly, Robinhood banking services are gradually coming online, and Robinhood Ventures is about to launch."

CFO Jason Warnick mentioned in the announcement:

"The third quarter once again achieved strong and profitable growth, as we continue to diversify our business, adding two new business lines with annual revenues of approximately $100 million or more—Prediction Markets and Bitstamp."

Analysis and Commentary

Robinhood has been working hard to diversify its revenue sources to reduce reliance on trading business. Earlier this week, the company announced a partnership with Sage Home Loans to enable its customers to access home loans. Additionally, the company plans to launch a closed-end fund to allow U.S. retail investors to gain exposure to private companies.

Analysts noted that Robinhood's third-quarter results released on Wednesday exceeded Wall Street expectations, continuing its strong performance this year, making it one of the standout companies among large U.S. tech stocks. Robinhood is betting that a new generation of investors will want to place bets not only on stocks but also on sports, cultural, and political events on the same platform. So far, this bet seems to be paying off.

As Robinhood expands its business into comprehensive wealth management, it is gradually narrowing the gap with Coinbase. The company has been actively attracting customers from Fidelity and Schwab by offering deposit matching incentives and is driving its asset management growth through the acquisition of TradePMR.

Robinhood primarily targets retail investors. It initially gained fame for its user-friendly platform that allowed beginners to easily buy and sell stocks. However, its trading business has significantly expanded: in the third quarter, nearly 90% of Robinhood's trading-related revenue came from categories outside of stocks, including options, futures, and cryptocurrencies.

David Bartosiak, a stock strategist at Zacks Investment Research, wrote in a morning report: "This is no longer the Robinhood of the pandemic era. It is now more streamlined, more diversified, and is quietly growing into a true fintech competitor."