Robinhood’s third-quarter earnings were less than impressive, and its stock tumbled as investors took the deflated numbers as a warning sign that profits will be hard to grow. But executives say the lower than expected numbers aren’t as bad as they seem, temporary incentives raised costs.
The retail trading platform reported revenue of $637 million in the quarter, a 36% jump from a year earlier, but slightly less than analyst projections of $663 million.
Earnings per share were $0.17, an 89% jump year-over-year, but a penny below analyst expectations.
The earnings report comes as the company is trying to expand its offerings beyond its popular retail trading platform, with new products such as retirement accounts, credit cards, election betting, and more sophisticated options for investing like futures and index options.
“We view this quarter as somewhat of a seasonal deceleration in the business after a robust first half of 2024 with record net deposit growth and benefits from a peak environment,” JP Morgan analyst Kenneth B. Worthington said in a note on Oct. 30. “As such, we are not surprised by the significant, negative stock reaction post-market.”
Spooked investors sent the stock tumbling 16% immediately following the earnings release. However, even after the decline the stock has increased 162.25% year-over-year while the S&P has seen a 36.60% climb in the same period.
The disappointing results come as trading volumes surged on the Robinhood platform. The company’s most recognized incentive, the 1-3% match program on transfers and contributions to retirement accounts hosted on the platform, cut profits by $27 million. The company also released three new features in October they hope will appeal to advanced traders that overlook the platform.
“Customers love the matches we provide on asset transfers and IRA contributions. And we’re seeing great payback periods on these matches,” chief financial officer Jason Warnick said on the media call.
The company counts the cost of incentives as “contra revenue” and the amount increased in the third quarter to 27 million dollars, up $14 million from the second quarter. Incentive costs are expected to remain high for the rest of the year.
The majority of analysts on Wall Street still had a buy recommendation at the close of the week.
“Despite the lower-than-expected 3Q results & 4Q outlook, we continue to see a solid growth outlook for the platform begin emerging more forcefully in 2025, as key product rollouts gain traction during the year,” Deutsche Bank research analyst Brian Bedell said in a note dated Oct. 31.
Deutsche Bank’s 2025 price target is $27 following the announcement of new products at the Hood Week summit in mid-October.
While the street seems to have a positive outlook on Robinhood’s future,It is unclear whether or not Robinhood’s release of new products like futures, index options, and election betting is enough to convince investors of its perceived success.
Robinhood’s election contracts, which were released two-days prior to earnings on Oct. 28, are expected to attract only a small number of users compared with established betting platforms like Polymarket.
“If Robinhood were to see volumes in the next few weeks similar to those seen on PolyMarket to date, this would represent low- to mid-single digit upside to Q4 numbers, which would not recur,” he said.