The crypto market let investors down: Robinhood shares plummeted despite a boom in event betting

Shares of online brokerage Robinhood fell 8.4% in premarket trading in New York following the release of its third-quarter earnings report. Revenue for the popular stock and cryptocurrency trading platform from prediction markets—where customers place bets on the outcome of events—rose more than sixfold to $173 million. But a 55% drop in cryptocurrency revenue offset both this surge and the increase in stock and options trading, according to MarketWatch.

As a result, Robinhood's revenue rose by only 12%, to $1.42 billion, while earnings per share fell by 16%, to $0.51. According to FactSet, analysts had expected higher figures: revenue of $1.44 billion and earnings per share of $0.56.

Robinhood has been affected not only by the downturn in the cryptocurrency market, which has persisted for most of the year. The company’s net interest income fell by 9% as it earned less from lending out clients’ securities and short-term interest rates declined, MarketWatch notes.

Operating expenses rose by 16%, which is faster than revenue growth. The company had to spend money on “Trump’s bills” — investment accounts that the U.S. government introduced this year for Americans born between 2025 and 2028 — as well as on maintaining Rothera, a prediction markets platform created in partnership with the market maker Susquehanna.

Robinhood CFO Shiv Verma told MarketWatch that in the third quarter, the platform’s customers bought chipmakers’ stocks on dips, even though those stocks were volatile due to concerns about the return on investment in AI. “Semiconductor stocks were highly volatile. We saw customers jumping into the trading fray and using this as an opportunity to buy many stocks they had really researched,” he said. Interest in the prediction markets is also growing: according to the CFO, as the U.S. midterm congressional elections approach, clients are increasingly placing bets on their outcomes.

Net cash inflows into customer accounts exceeded $13 billion in October, according to Robinhood’s quarterly report. Of that amount, approximately $6 billion was deposited into “Trump accounts” by Dell CEO Michael Dell and his wife, Susan: Robinhood serves as the broker for these accounts and, initially, as their trustee.

Although Robinhood’s stock has fallen 16% since the start of the year through Tuesday’s close, most analysts remain optimistic. Of the 37 recommendations for these shares, 30 are buy recommendations, five are hold recommendations, and only three analysts suggest reducing holdings in the company.

Last week, Rosenblatt analyst Chris Brandler initiated coverage of Robinhood stock with a “Buy” rating and a price target of $135 per share, implying 43% upside potential relative to the last closing price. “Few companies can say they’ve transformed an entire industry, but Robinhood can,” Brandler noted (as quoted by Barron’s).

On October 20, analysts at JPMorgan Chase raised their price target to $115 per share but maintained a neutral rating. They cited the forecasting markets as an important source of growth for Robinhood. However, JPMorgan expressed doubt that the company’s customers, who have relatively little money in their accounts, would generate profits for it in the long term, and warned that Robinhood’s business expansion could be hampered by growing competition from traditional brokers and cryptocurrency platforms, Barron’s reported.

This article was AI-translated and verified by a human editor