Online retail brokerage Robinhood Markets Inc. reported its fourth-quarter earnings after the market closed on Tuesday. While the company achieved a new record for total revenue, its quarterly performance fell short of Wall Street expectations due to a significant decline in cryptocurrency trading revenue, leading to a notable drop in its stock price during after-hours trading. However, the company's emerging prediction market business demonstrated remarkable growth potential, offering a bright spot in an otherwise subdued earnings report.
Core Performance: Crypto Business Weighs on Results The California-based company reported revenue of $1.28 billion for the quarter ended December 31, a record high but below the analyst consensus estimate of $1.34 billion. Net profit fell sharply by 34% to $605 million, or $0.66 per share, slightly above the Wall Street forecast of $0.63 per share.
Amid concerns about an AI bubble and geopolitical turbulence triggering stock market sell-offs, retail investors, who have become a crucial support for the U.S. stock market, continued to enter the market to buy on dips. This drove a 15% increase in Robinhood's transaction-based revenue for the quarter to $776 million. Equity-based revenue surged 54% as the primary driver, while options revenue also grew by 41%.
However, not all asset classes benefited from the ongoing volatility. Revenue from cryptocurrency trading was $221 million for the quarter, down 38% year-over-year and missing the analyst estimate of $248 million. The crypto market has remained sluggish for months following a sharp decline in Bitcoin last October, when its price nearly halved from its October 6 peak, leading to widespread liquidations of highly leveraged positions. Analysts at Deutsche Bank noted that U.S. spot Bitcoin ETFs experienced net outflows of approximately $7 billion and $2 billion in November and December, respectively.
In an interview, newly appointed Chief Financial Officer Shiv Verma commented on the company's crypto trading pricing structure, stating, "For high-frequency trading clients, we employ a lower-tier fee structure." Verma added, "Active traders continue to trade at a high frequency, but these clients are subject to the lowest fee rates. Consequently, the rebate rate we actually realize is slightly below market expectations."
Following the earnings release, Robinhood's stock fell more than 7% in after-hours trading. Year-to-date, the company's share price has declined by 24%.
Business Highlight: Prediction Markets Show Strong Growth While its traditional trading business faced challenges, Robinhood's prediction market segment emerged as the biggest positive surprise in the earnings report. This service allows users to place bets on the outcomes of various events, such as sports. On Tuesday, Robinhood stated that over 12 billion event contracts were traded on its platform last year. Chief Executive Officer Vlad Tenev told analysts on the earnings call that this is the fastest-growing business in the company's history. "We are at the beginning of a supercycle for prediction markets," he said.
To strengthen its position in this area, Robinhood announced during the quarter a partnership with Susquehanna International Group to acquire a majority stake in derivatives exchange LedgerX. The announcement coincided with a surge in popularity for prediction markets, as the U.S. Commodity Futures Trading Commission indicated plans to establish new regulations for the multi-billion dollar industry. Tenev further noted that Robinhood plans to expand into "several new markets" later this year.