Robinhood Q3 Earnings Fall Short of Estimates as Crypto Trading Declines, Stock Drops

Photo illustration in Brazil - 05 Aug 2021
Rafael Henrique / SOPA Images /

Robinhood’s third quarter earnings missed analysts’ estimates, sending the stock down. The losses were mostly due to crypto activity declining from record highs in the prior quarter. The stock was down 9% this morning.

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Total revenue was $364.9 million, according to a financial release, missing the $423.9 million estimate of 10 analysts surveyed by Bloomberg. Third quarter transaction based revenue totaled $267 million, with only $51 million coming from cryptocurrency trading, according to the release.

Crypto activity declined from record highs in the prior quarter, leading to considerably fewer new funded accounts, a slight decline in net cumulative funded accounts and lower revenue in the third quarter of 2021 compared with the second quarter of 2021, according to the release.

Ron Levy, CEO and co-founder of The Crypto Company, told GOBankingRates that “this is a good educational moment for those active in the traditional markets as they witness the shadow effect from a company, specifically Robinhood, that is deriving a substantial part of its revenue from the crypto markets.”

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Dogecoin wasn’t going to be forever and that is what drove a substantial amount of revenues for Robinhood in Q2. Now, while the Dogecoin activity saw a visible short-term bump in Q2, the growth of the crypto industry will provide the long-term growth that Robinhood shareholders should benefit from over time,” Levy added.

Robinhood had warned in July in its IPO filing that while a substantial portion of the recent growth in its net revenues earned from cryptocurrency transactions was attributable to transactions in Dogecoin, “if demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected,” according to the prospectus.

“This quarter was about developing more products and services for our customers, including crypto wallets,” Vlad Tenev, CEO and Co-Founder of Robinhood Markets, said in the release. “More than one million people have joined our crypto wallets waitlist to date. With 24/7 live phone support, we believe that Robinhood is becoming the most trusted and intuitive platform for retail and crypto investors. And looking ahead, we’re committed to delivering tax advantaged retirement accounts to help everyone invest for the long term.”

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“If this quarter is a hint of what’s to come, in terms of volatility, I would expect sentiment and the valuation multiple to drop,” Mike Bailey, an analyst at FBB Capital Partners, said in a note to clients, according to Bloomberg. “The Robinhood sales miss contrasts with the more favorable trading revenue for the big banks and brokers, which may have led investors to anticipate higher trading volumes for Robinhood.”

As for its financial outlook, Robinhood said its business is affected by many factors, including seasonality, general market conditions (including volatility) and retail trading behavior, as well as significant, unanticipated market events.

“For the three months ending December 31, 2021, we anticipate that many of the factors that impacted our third quarter results, such as seasonal headwinds and lower retail trading activity, may persist. In the absence of any changes to the market environment or exogenous events, we believe this may result in quarterly revenues no greater than $325 million and full year revenue of less than $1.8 billion. Additionally, we expect new funded accounts for the fourth quarter will be roughly in line with the 660,000 opened in the third quarter of 2021,” according to the release.

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Back in July, Robinhood made public the prospectus of its much-anticipated initial public offering, revealing it had grown its funded accounts by 151% year-over-year to 18 million — from 7.2 million — according to a Securities and Exchange filing.

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Last updated: October 27, 2021

About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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