Robinhood's Q3 Earnings Miss Expectations

By Arasu Kannagi Basil and Atharva Singh
(Reuters) – Retail trading platform Robinhood (NASDAQ:HOOD) reported third-quarter earnings that fell short of expectations on Wednesday. This discrepancy was attributed to an accounting quirk related to incentives that analysts had overlooked, subsequently causing shares to drop 11% after hours.

Chief Financial Officer Jason Warnick explained during a media call that the shortfall was due to analyst models not accounting for “contra revenue” from the brokerage’s match promotions, which were used to incentivize customers to shift their assets.

Robinhood’s net revenue for the quarter was impacted by $27 million because of the 1%-3% matches offered to customers. Warnick noted that “the match promotion dollars are recorded as an offset to revenue,” indicating that analysts did not fully consider this factor for the quarter.

Expectations for contra revenue indicate growth in the fourth quarter, though at a slower pace anticipated for 2025, with the increase largely stemming from a boost in deposits, slated to wind down in November.

Simultaneously, Robinhood experienced heightened trading volumes as increased market activity attracted more retail investors to the platform. Trading has revived since Bitcoin and U.S. stocks reached record highs, bolstered by optimism for a soft landing in the U.S. economy. Additionally, the approval of exchange-traded funds tracking spot prices for Bitcoin and Ether has positively influenced crypto markets this year.

The company reported a 65% increase in equity trading volumes and a 112% rise in crypto trading volumes, alongside a 47% surge in options contracts traded.

In October, Robinhood introduced futures and index options trading features in its mobile app and launched a long-awaited desktop platform to compete with traditional brokerages.

Robinhood’s transaction-based revenue rose 72% to $319 million, driven mainly by performance in options and cryptocurrencies. However, net deposits fell to $10 billion from $13.2 billion sequentially, raising concerns about potential margin impacts, according to Running Point Capital’s chief investment officer, Michael Ashley Schulman.

The profit reported was 17 cents per share, falling short of the expected 18 cents per share, according to LSEG estimates. Despite this, net revenue surged 36% to $637 million in the quarter, although it still did not meet the projected $657.9 million.