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 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.

OPTIONS, EVENT CONTRACTS OFFSET CRYPTO SLUMP

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.

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 per cent 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.