Robinhood HOOD reported weaker-than-expected third-quarter earnings on Tuesday as declining interest income and rising expenses offset record trading activity across stocks, options and prediction markets.
Earnings Fall Despite Revenue Growth
Robinhood’s earnings per share fell 16% to 51 cents, missing Zacks Consensus Estimate of 56 cents. Revenues rose 12% year over year to $1.42 billion but lagged the Zacks Consensus Estimate of $1.44 billion.
Robinhood shares fell about 8% in overnight trading following the results. The stock has declined more than 15% since the start of 2026 through Tuesday’s close, putting it on track for its worst annual performance since 2022, as reported by Yahoo Finance.
Record Trading Activity Boosts Transaction Revenue; Crypto Revenue Down
The brokerage’s core trading business remained strong. Transaction-based revenues climbed 19% year over year to $867 million, supported by record trading volumes across stocks, options and prediction markets.
Options trading revenues jumped 31% to $399 million, while equities trading revenues rose 41% to $121 million. Customers traded a record 16.4 billion contracts during the quarter. Crypto trading revenues, however, plunged 55% year over year to $120 million as activity weakened.
Lower Interest Income Weighs on Results
Despite the strong trading performance, net interest revenues fell 9% year over year to $415 million. Robinhood attributed part of the decline to lower securities lending activity.
Rising Expenses Add to Pressure
Robinhood’s operating expenses increased 16% year over year to $739 million. Provisions for credit losses nearly tripled to $71 million as the company expanded its credit card business. It also reported $67 million in unrealized investment losses, primarily related to its venture fund.
Prediction Markets Remain a Growth Driver
Prediction markets continued to gain traction, with event-contract revenues and trading volumes reaching new highs. However, the sharp decline in crypto revenues and lower interest income highlight the challenges Robinhood faces in sustaining earnings growth despite strong customer trading activity.
ETFs in Focus
At the time of writing, Robinhood Markets has a Zacks Rank #1 (Strong Buy). However, analysts may downgrade the stock in the coming days. Robinhood also looks overvalued, trading at a forward price-to-earnings ratio of 42.30X, compared with the Financial - Investment Bank industry average of 12.96X. Its price-to-sales ratio stands at 16.92X versus the industry average of 1.89X.
Hence, it is better to trade the stock with a basket or ETF approach. The ETF method minimizes the company-specific concentration risks. Below, we have highlighted a few HOOD-heavy ETFs that are in focus now.
Global X FinTech ETF FINX – 8.7% weight
First Trust SkyBridge Crypto Industry & Digital Economy ETF CRPT – 8.1% weight
ARK Blockchain & Fintech Innovation ETF ARKF – 6.1% weight
Corgi Crypto Infrastructure ETF BLCK – 5.2% weight
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Robinhood Markets, Inc. (HOOD): Free Stock Analysis Report
Global X FinTech ETF (FINX): ETF Research Reports
ARK Blockchain & Fintech Innovation ETF (ARKF): ETF Research Reports
First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).