Robinhood’s Record Quarter Exposes the Price of Diversification

Revenue rose 12% to a record $1.42 billion as event contracts overtook crypto, but a fund markdown, a higher tax rate and softer interest income cut reported EPS 16% to $0.51.

Key Takeaways

• Event contracts revenue rose more than sixfold to $173 million on 16.4 billion contracts, out-earning crypto for a second straight quarter as crypto revenue fell 55% to $120 million.
• Pre-tax income held near $625 million. The profit decline came from a $67 million loss on Robinhood Ventures Fund I and a tax rate near 24%, and adjusted EPS of $0.60 beat consensus.
• Shares fell as much as 7% after hours and about 8% premarket as a slight revenue miss met a warning that early fourth-quarter trading volumes were running about 5% below Q3.

The Revenue Line and the Profit Line Part Ways

Robinhood Markets has spent two years persuading investors that it is no longer a crypto broker with a stock app attached. Its third-quarter results, released on October 27, are the strongest evidence yet for that claim, and also a reminder of what the new model costs. Revenue for the three months to September 30 reached a record $1.424 billion, up 12% from a year earlier. Net income attributable to the company fell 16% to $468 million. Diluted earnings per share slipped to $0.51 from $0.61, and net margin narrowed to 33% from 44%.

The drop in profit had little to do with the operating business. Pre-tax income was essentially flat at $625 million, against $634 million a year earlier. The damage came from two lines below operations. The tax provision nearly doubled to $149 million, lifting the effective rate to about 24% from roughly 12%. Other expense widened to $60 million, mostly because of a $67 million unrealized loss on Robinhood’s stake in Robinhood Ventures Fund I, the closed-end fund it listed on the New York Stock Exchange in March. In the second quarter that same fund had added a $129 million gain. Excluding such items, adjusted earnings per share were $0.60, down 3% and ahead of consensus. Adjusted EBITDA rose 9% to a record $808 million, a 57% margin.

Event Contracts Become the Growth Engine

The mix of revenue underneath the headline has changed very quickly. Transaction-based revenue rose 19% to $867 million. Event contracts, Robinhood’s prediction-market products, brought in $173 million on a record 16.4 billion contracts. A year earlier the line produced less than $30 million. Options revenue rose 31% to $399 million and equities 41% to $121 million, both on record volumes. Crypto used to decide whether a Robinhood quarter was good or bad. This time its revenue fell 55% to $120 million as notional volume in the app dropped 48%. For the second quarter running, customers trading on outcomes generated more revenue than customers trading tokens.

Robinhood is also building the infrastructure underneath. Rothera, its joint venture with Susquehanna, bought 90% of the exchange MIAXdx in January and passed $100 million in annualized revenue in its first full quarter. Owning the venue as well as the customer improves the economics. It also deepens Robinhood’s exposure to the business where its legal footing is weakest. The quarterly report warns that enforcement actions and litigation could stop or limit its event contracts, and it notes that the company has withdrawn some contracts in the past. Investors are being asked to value a growth stream whose ceiling depends as much on regulators and courts as on customer demand.

The Balance Sheet Business Loses Some Lift

Net interest revenue has been a mainstay of Robinhood’s earnings since rates rose in 2022. This quarter it fell 9% to $415 million. Management blamed lower securities lending activity and lower short-term rates, partly offset by growth in interest-earning assets. Chief financial officer Shiv Verma linked the weaker demand to borrow stock to lower volatility and a thin IPO calendar. The book underneath is still growing. Margin loans reached a record $22.1 billion, up 59%, even as cash sweep balances fell 9% to $32.3 billion. Verma estimated that each 25 basis point move in rates changes revenue by about 1.5%.

Operating expenses rose 16% to $739 million, and most of the increase is the cost of diversifying. The provision for credit losses nearly tripled to $71 million. Over the same period the Gold Card reached 1.3 million customers and more than $19 billion in annualized payment volume. Operations expense more than doubled to $79 million because of Trump Accounts and Rothera, while general and administrative costs fell 12%. Management cut the top of its 2026 range for adjusted operating expenses plus share-based compensation by $25 million, to $2.675 billion to $2.75 billion. That is a small show of restraint in a year of heavy spending. Other revenue, which includes Trump Account service fees and Gold subscriptions, rose 61% to $142 million.

Deposits, Trump Accounts and the Wider Map

Customer growth kept its pace. Funded customers rose 7% to 28.7 million, Gold subscribers rose 34% to a record 5.18 million, and total platform assets climbed 19% to $395.9 billion. Net deposits of $15.7 billion equal a 17% annualized growth rate. That is below both the $20.4 billion of a year earlier and the record $21.7 billion of the second quarter. October has already brought in more than $13 billion, including $6 billion from the Dell family’s contribution to Trump Accounts. Management said it had beaten its 20% annual net deposit target with two months still to go.

Trump Accounts may turn out to be the most important development of Robinhood’s year. Under the federal program, which launched on July 4, Robinhood is broker and sole initial trustee on behalf of the U.S. Treasury. Nearly 70 million children have been enrolled automatically, and 25 million already hold $250 each, funded by the Dells’ $6.25 billion pledge. The program puts Robinhood at the very start of a generation’s financial life. It also makes deposit flows lumpier and more dependent on philanthropy and policy. Outside the U.S., Robinhood launched crypto trading in the UK and won approval from Dubai’s financial regulator for a 2027 rollout. It is also live in Canada after buying WonderFi in June.

A Market That Wants Steadier Earnings

The shares closed the regular session on October 27 at $94.56, up 1.85%. After the release they traded as low as $87.60 in extended hours, and Reuters reported a drop of about 8% in premarket trading on Wednesday. Revenue came in slightly below consensus estimates of $1.43 billion to $1.44 billion, and reported earnings missed even though the adjusted figure beat. The comments on the call carried more weight. Verma said early fourth-quarter volumes in equities, options and crypto were running about 5% below the third quarter and that spreads were slightly tighter. Event contract activity was up about 10%. The stock had already fallen more than 15% this year before the report, and its 52-week high is $150.47.

The market was judging the quality of the earnings more than the amount. Robinhood now has 14 business lines with more than $100 million each in annualized revenue. That base is far broader than the crypto-heavy mix that left it exposed in earlier cycles. But each new line adds a risk of its own: legal risk in event contracts, credit risk in cards, rate exposure in the interest book, and mark-to-market swings in a fund it sponsors. Citadel Securities alone made up 17% of revenue in the quarter, up from 13%. Chief executive Vlad Tenev says the company’s guiding goal is to maximize earnings and free cash flow per share. On an adjusted basis, the third quarter met that goal. The fourth quarter will need to show that a more diversified Robinhood can also be a less volatile one.