Robinhood revenue misses expectations, shares sink

·Markets Reporter
·2 min read

Robinhood (HOOD) reported third quarter revenue on Tuesday which missed Wall Street analyst expectations. The investing platform's annual revenue forecast also missed estimates.

Shares sank about 8% in after-hours immediately following the results.

Robinhood's third quarter revenue jumped 35% to $364.9 million compared with $270 million in the third quarter of 2020, but still missed Wall Street estimates of $423.9 million.

Average Revenues Per User (ARPU) decreased 36% to $65, compared with $102 in the third quarter of 2020.

The company's annual revenue forecast of less than $1.8 billion missed Wall Street estimates of $2.03 billion.

The company said 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."

Robinhood had warned previously of "seasonal headwinds" across the industry going into the second half of the year, which could result in "lower revenues and considerably fewer new funded accounts."

The company recently announced an upcoming crypto wallet. "More than one million people have joined our crypto wallets waitlist to date," CEO and co-founder Vlad Tenev said in the company's quarterly release.

Investors were keeping an eye out for any commentary during the earnings call about payment for order flow, the model which has enabled zero-commission trades from the likes of Robinhood and other investing apps.

The U.S. Securities and Exchange Commission (SEC) chair Gary Gensler told Yahoo Finance banning the practice is a possibility.

Gensler said "inherent conflicts" in the payment for order revenue model may incentivize brokerages to gamify stock betting to increase the volume of trading.

Robinhood has been moving away from payment for order flow as a revenue generator, with a decline in PFOF as a percentage of revenue quarter over quarter.

Similar to Q2's earnings release, shareholders were allowed to submit questions ahead of time for management to answer during the conference call on Tuesday. Those with the most upvotes would be selected.

Robinhood went public on the Nasdaq on July 28th with an IPO price of $38/share. The app was whirled into the GameStop (GME) saga earlier this year as many retail traders were using Robinhood to execute their orders during that time.

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