Crypto Trading Doubles, But Vlad’s Cash-Back Promo Backfires as HOOD Drops 12%

Robinhood’s election-betting play was supposed to bring a big payday, or at least give Vlad Tenev’s hairline a fighting chance against all the stress. But based on Thursday’s market action, the voters were out, and they did not elect Robinhood to be their financial savior this quarter. 

After rocketing up 120% this year, HOOD has already dropped 12% before the market opened. This stumble came as Robinhood’s plan to attract more assets with cash-back promos left the company footing a bigger bill than they bargained for. And with revenue coming in at a mid (as the kids would say) $637 million, this wasn’t the historic quarter Robinhood execs had in mind.

For starters, Robinhood tried to reel in customers with a “bring your assets, get a bonus” scheme that CFO Jason Warnick called “really attractive” for its growth potential. Attractive? Maybe. Expensive? Definitely. Robinhood handed out millions to entice customers to transfer their accounts from other brokerages, which sounds like a great idea until you realize that these promos shaved a cool $27 million off their Q3 revenue. 

This little incentive party resulted in Robinhood missing Wall Street’s forecast of $663.5 million by a solid margin. Not ideal for a company that’s trying to graduate from meme-stock central to a legit financial institution.

In terms of actual numbers, Robinhood’s net income clocked in at $150 million, missing the mark of $169.8 million that analysts were hoping for. And while crypto trading was a standout, doubling from last year, it wasn’t enough to rescue the bottom line. The company’s crypto volume hit $14.4 billion, with crypto revenue jumping 165% year over year, but even the rallying crypto crowd couldn’t save HOOD from a post-earnings letdown.

If you’re wondering, “Wait, what about that new election contract action?” Well, don’t hold your breath. Barclays peed in Vlad’s cheerios by saying the revenue bump from these election contracts would likely be “modest” at best. While Robinhood was hoping to cash in on the election season, Barclays estimated that even a strong turnout on these bets would only give a low- to mid-single-digit boost in Q4 numbers. 

And let’s not forget: Robinhood is trying everything to shake off its “app-for-redditors” image. It’s rolling out a desktop trading platform, options for futures and index trading, and even a new credit card. They’re clearly trying to pivot towards the more “sophisticated” investor, and maybe someday they’ll win over the Charles Schwab and Interactive Brokers crowd (the old money kind of people). But for now? That’s a big “not yet.”

Wall Street analysts are split on whether this is just a seasonal blip or a sign that Robinhood’s growth story is starting to fray around the edges. JPMorgan tried to soften the blow, calling this a “seasonal deceleration” after a strong first half of the year, but it’s hard to put too much stock in that spin when the actual revenue growth fell short.

Robinhood may be turning into the Swiss Army knife of financial apps (crypto, credit, futures, you name it) but with customer incentives eating into the bottom line, it’s clear they haven’t quite nailed profitability. And with election contracts barely scratching the revenue surface, Robinhood’s transformation into a “serious” brokerage is still a work in progress.

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Stock.News has positions in Robinhood.