The third quarter was not a good one for the stock market, and the online brokerage Robinhood Markets (NASDAQ:HOOD) certainly felt that pain.
The company missed revenue expectations on lower trading volumes and saw a drop in active users, resulting in a steep 14% decline in its stock price on Wednesday. Robinhood was trading at around $8.40 per share on Wednesday afternoon.
Trading revenue plummets
Robinhood posted a 29% year-over-year revenue increase in the third quarter, bringing it to $467 million, but that was below the consensus estimate of $478 million.
The revenue gains mainly came from interest income, which rose 96% to $251 million. Robinhood generates interest income by providing loans to margin investors and charging interest on those loans. This revenue stream spiked on higher interest rates.
What caused Robinhood to miss revenue estimates was lower-than-anticipated revenue from trading volume. Revenue from transactions on the online platform was down 11% year over year to $185 million. This in part was related to the overall market, which was down by about 6% in the third quarter. That likely caused a 16% year-over-year drop in monthly active users (MAU) to 10.3 million.
That led to equity trading revenue falling 13% to $27 million. Cryptocurrency trading was hit even harder, as it dropped 55% to $23 million. However, Robinhood did see a 27% increase in average revenue per user (ARPU) to $80.
Overall, Robinhood had a net loss of $85 million or 9 cents per share, which was down from a net loss of $175 million in the third quarter of 2022. The loss was reduced somewhat by a 1% decrease in operating expenses. Adjusted EBITDA spiked 191% to $137 million.
“As we continue to grow revenues and stay lean on expenses, we’re focused on delivering strong operating leverage over time to drive shareholder value,” said Jason Warnick, chief financial officer at Robinhood.
Global expansion
Robinhood adjusted its outlook for operating expenses for fiscal 2023 from the previous range of $2.33 billion to $2.41 billion up slightly to between $2.399 billion and $2.439 billion.
The company also announced plans for global expansion. In the coming weeks, Robinhood plans to launch brokerage operations in the U.K., followed by rolling out crypto trading in the EU. Co-founder and CEO Vlad Tenev sees big opportunities beyond U.S. borders.
“Here, we have been laser-focused on international expansion,” he said. “In the U.S. alone, we’ve built a business with 23 million customers that serves nearly 10% of American adults, but there are billions more potential customers across the globe, and as we serve them, we believe our business can evolve into one where the majority of our customer base is outside the U.S. in the years to come.”
Investors will definitely want to tune in for more details on these launches as they are rolled out, likely sometime in the next few weeks.
For now, Wednesday’s volatility aside, Robinhood seems to be making steady progress, reducing expenses, growing its retail trading market share, and expanding into new markets like retirement accounts and this new venture overseas.
Although Robinhood is not a stock I’d buy at this point, it is worth watching as it steadily moves closer to profitability.
