Shareholders of trading app Robinhood (NASDAQ:HOOD) are in for a rough ride today.
HOOD stock fell more than 10% in pre-market trading after the company reported a huge revenue miss for the third quarter and announced that cryptocurrency trading on its platform has slowed dramatically. Even worse, Robinhood said that it expects the lower retail trading activity, especially among cryptocurrencies, will persist into 2022.
What Happened With HOOD Stock?
For the third quarter, Menlo Park, California-based Robinhood’s total net revenue came in at $365 million, missing a Refinitiv estimate of $431.5 million. The company’s revenues increased 35% from the third quarter of 2020 but came in below this year’s second-quarter revenue of $565 million. Robinhood says Q2’s performance was thanks to a surge in crypto trading during the spring.
In the third quarter, transaction-based revenue totaled $267 million, with only $51 million coming from trading in cryptocurrencies such as Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD). Revenue from cryptocurrency trading had totaled $233 million in Q2, thanks to Dogecoin (CCC:DOGE-USD).
Why It Matters
The earnings miss, and, more importantly, the waning cryptocurrency trading, indicates that retail investor interest in Robinhood’s app, which surged during the pandemic, is now cooling. Indeed, Robinhood reported that monthly active users on its platform totaled 18.9 million in the third quarter, down from 21.3 million in the second quarter. Also, average revenue per user decreased by 36%, down from $102 to $65.
It’s not just crypto, either. Robinhood announced that options and stock trading declined in Q3, contributing $164 million and $50 million respectively to its bottom line. All together, Robinhood reported a net loss of $1.32 billion, or $2.06 per share, for the third quarter. That was much worse than the loss of $1.37 per share that Wall Street had expected.
What’s Next for Robinhood
The third-quarter results are bad news for Robinhood, which only went public in July of this year at an inaugural share price of $38. The stock closed at $39.57 per share yesterday, Oct. 26, but is likely to open sharply lower when trading begins today given the steep after-market selloff following its Q3 results.
Looking ahead, Robinhood said it expects fourth-quarter revenue to come in around $325 million. Investors who stick with HOOD stock will have to dramatically lower their expectations for future growth. With retail investors dropping off the company’s platform and cryptocurrency trading slowing dramatically, it looks like the party at Robinhood might be over.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.