Robinhood Markets, Inc. (NASDAQ: HOOD) reported its third-quarter 2024 earnings, revealing mixed results that sparked a nearly 12% drop in its stock price in after-hours trading.

Total net revenue for Q3 2024 was $637 million, up 36% from $467 million in the same period last year but down 7% from $682 million in Q2 2024. The year-over-year growth was led by a 72% increase in transaction-based revenue, which reached $319 million this quarter, primarily fueled by options and crypto trading.

Breaking it down, options trading revenue rose by 63% year-over-year to $202 million, but showed a slight sequential decrease of 2% compared to Q2. Cryptocurrency trading revenue surged 165% year-over-year, reaching $61 million, though it remained flat from the previous quarter. Equity trading revenue increased by 37% year-over-year to $37 million, signaling sustained interest from retail investors.

Despite this robust year-over-year increase, the sequential drop in total revenue raises concerns about Robinhood’s ability to maintain momentum, especially as competition among retail trading platforms intensifies. Analysts had expected a quarterly revenue of $657.9 million, making the $637 million result a notable miss.

Robinhood also reported a net income of $150 million, or $0.17 per diluted share, representing a significant improvement over a net loss of $85 million (or -$0.09 per share) in Q3 2023. Nevertheless, EPS missed the consensus estimate of $0.18 per share, primarily due to unanticipated promotional expenses that offset revenue growth.

One of the primary contributors to the earnings miss was the $27 million in “contra revenue,” attributed to Robinhood’s match promotions, which aim to attract users from other brokerages. These promotions, such as a 1% match for Gold account deposits, reduced net revenue by $27 million in Q3, up from $13 million in Q2 2024. According to CFO Jason Warnick, these promotional offsets were not factored in adequately by analysts and are expected to moderate after Q4 as Robinhood phases out certain incentives, including the 1% Gold deposit match .

The reliance on promotional spending to boost user deposits raises questions about the sustainability of Robinhood’s current growth model. With net deposits falling to $10 billion from $13.2 billion in the previous quarter, the effectiveness of these incentives in driving lasting customer growth appears limited.

Robinhood’s total operating expenses decreased by 10% year-over-year to $486 million, attributed to reductions in regulatory accruals and administrative costs. However, adjusted operating expenses, which exclude share-based compensation and significant legal expenses, increased by 12% to $397 million, primarily due to intensified marketing efforts and investments in product development.

For instance, marketing expenses surged 111% year-over-year to $59 million, reflecting Robinhood’s continued push for user acquisition. Technology and development expenses were up 1% year-over-year at $205 million but decreased 2% sequentially from Q2, indicating controlled spending but potentially limited new feature rollouts .

Robinhood’s average revenue per user (ARPU) reached $105, up 31% year-over-year, and monthly active users (MAU) grew 7% to 11 million, indicating that user engagement remains strong. While Robinhood’s user base continues to expand, with 24.3 million funded customers as of Q3 2024, the rate of increase has slowed compared to earlier quarters, putting a question mark on the surge of marketing expenses.

Robinhood’s cash and cash equivalents stood at $4.6 billion, slightly down from $4.9 billion at the end of Q3 2023, indicating a solid liquidity position amid ongoing share repurchase activities. Since initiating its $1 billion share buyback program in July 2024, the company has repurchased $97 million worth of stock this quarter, representing 5 million shares at an average price of $19.42.

Looking forward, Robinhood’s focus on expanding its active trader offerings may help bolster revenue. In October, the company introduced its web-based “Robinhood Legend” platform for advanced traders and announced plans for futures trading, index options, and event contracts ahead of the November 2024 U.S. elections.

Robinhood last traded at $28.21 on the NASDAQ.

Information for this briefing was found via Reuters, Market Watch, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.