Robinhood's prediction markets are raking it in, but crypto revenue has been cut in half

Author: SoSoValue Research



Robinhood's Q3 earnings report shows a stark divergence: options, prediction markets, and on-chain businesses drove revenue to a new high, yet crypto trading revenue remained halved year-over-year, and profit also failed to resume year-over-year growth. The company is gradually broadening its revenue sources, but the efficiency with which new trading activity converts into profit has become the core test of this earnings report.

Q3 revenue came in at $1.424 billion, up 11.8% year-over-year and 8.9% quarter-over-quarter, slightly below the market expectation of approximately $1.43 billion; net income was $476 million, down 14% year-over-year. Following the earnings release, the stock fell about 7% in after-hours trading. Judging from the revenue structure and subsequent operating trends, market concerns center on the quality of growth: high-growth businesses have begun to fill the gap left by legacy businesses, but the incremental revenue still needs to absorb expense expansion, declining interest income, and monetization pressure on trading.

Unrealized Losses Amplified the Profit Decline, While Core Profitability Still Lacks Year-over-Year Growth

Q3 GAAP earnings per share were $0.51, down 16% year-over-year, including a $67 million unrealized loss primarily related to valuation changes in Robinhood Ventures Fund I, which had an impact of approximately $0.07 per share on EPS. Adding back this impact alone, EPS would be approximately $0.58, down about 5% from $0.61 in the prior-year period.

This quarter, the company disclosed for the first time a new non-GAAP adjusted EPS of $0.60 after excluding items such as investment gains and losses, down 3% year-over-year but up 20% from $0.50 in the previous quarter. This change shows that sequential operating performance is improving, while reported profit is being noticeably distorted by fluctuations in investment valuations.

Expenses and tax burden also weighed on profit performance. Quarterly operating expenses rose 16% year-over-year to $739 million, outpacing revenue growth; credit loss provisions increased from $26 million to $71 million, mainly accompanying the expansion of the credit card lending business. Pre-tax profit fell only about 1% year-over-year, but income tax expense rose from $78 million to $149 million, further amplifying the decline in net income.

Adjusted EBITDA rose 9% year-over-year to $808 million, with a margin of approximately 57%, slightly below 58% in the prior-year period. Robinhood remains highly profitable, but record revenue has yet to bring year-over-year margin expansion, and growth investment in new businesses is also beginning to hit the cost side.

Crypto Trading Volume Rebounded, but Revenue Recovery Depends on On-Chain Incremental Contribution

Year-over-year pressure on the crypto business remains prominent. Q3 crypto revenue was $120 million, down 55% year-over-year; notional trading volume was $49.8 billion, down 38% year-over-year. Among this, trading volume on Robinhood's own app fell 48% year-over-year, while Bitstamp fell 28%, with the contraction on the retail trading side more pronounced.

Sequential data showed a recovery: total trading volume rose 23% from Q2, with the company's own app up 13% to $20.6 billion and Bitstamp up 32% to $29.2 billion. From July to September, monthly trading volume recovered from $10.9 billion to $17.5 billion and $21.4 billion, with trading activity improving month by month.

However, a gap emerged between the rebound in trading volume and revenue growth. Excluding the contribution from Robinhood Chain, Q3 crypto trading revenue was $94 million, down 6% from $100 million in Q2; own-app revenue fell from $94 million to $88 million, while Bitstamp revenue held at $6 million. What ultimately drove the 20% quarter-over-quarter increase in total crypto revenue was the $26 million in net revenue newly added by Robinhood Chain.

Management explained on the earnings call that the blended monetization rate of the crypto business was affected by the rising share of the stablecoin product Robinhood Earn, which has a lower monetization level than ordinary crypto trading.

As a result, the crypto business currently faces changes on both the demand and structural fronts: retail trading remains below last year's highs, and new activity is increasingly coming from institutional, stablecoin, and on-chain products. The platform covers a broader range of assets and customers, but the revenue each unit of trading volume can contribute also changes accordingly. The suppression of crypto risk appetite by high interest rates, sustained fund outflows, and geopolitical uncertainty remains an important constraint on the recovery of the retail spot business.

Prediction Markets Nearly Close the Crypto Gap, While Options Remain the Revenue Pillar

Prediction markets have become a part of Robinhood's revenue structure that cannot be ignored. Q3 event contract revenue reached $173 million, more than six times the prior-year period and up 11% quarter-over-quarter; contract volume reached 16.4 billion, more than seven times the prior-year period and up about 21% quarter-over-quarter. Among this, Rothera contributed $28 million in revenue.

In terms of absolute increments, prediction market revenue increased by about $146 million year-over-year, while crypto revenue decreased by about $148 million, with the two now nearly offsetting each other. Prediction markets played an important revenue backfill role, but their rapid growth was first used to fill the gap left by the crypto business.

Another pillar driving trading-related revenue up 19% year-over-year to $867 million was options: revenue rose 31% year-over-year to $399 million, accounting for about 46% of trading-related revenue; equities trading revenue rose 41% year-over-year to $121 million. Business diversification has already delivered tangible contributions and has also reduced Robinhood's dependence on a single crypto cycle.

The growth quality of prediction markets themselves also deserves attention. Management disclosed that the share of non-sports contracts rose from about 15% in the previous quarter to 30%; earnings and company operating metric contracts are still awaiting final approval and are being prepared for launch. Financial event products are expected to leverage the existing equities and options customer base to expand cross-trading demand.

At the same time, the quarter-over-quarter growth rate of event contract volume exceeded that of revenue, and options volume grew 48% year-over-year, also faster than the 31% increase in revenue. More trading is supporting business scale, but changes in product mix and pricing will affect how much profit these increments ultimately contribute.

Robinhood Chain and AI Agents Begin to Provide New Revenue Paths

Robinhood Chain is one of the new businesses with the clearest commercialization progress this quarter. The company disclosed that in its first quarter after mainnet launch, it generated more than $80 billion in DEX trading volume and more than $50 million in on-chain fees, ranking among the world's top five chains by revenue and trading volume; the earnings report confirmed $26 million in related net revenue, accounting for about 22% of crypto revenue for the quarter.

This contribution is already financially meaningful. Robinhood is expanding its trading scope through its own chain, tokenized assets, and perpetual contracts, and is gradually extending from a retail trading gateway to trading infrastructure. Even if some customers move to on-chain markets, the company still has the opportunity to continue participating in their trading activity and earn revenue.

AI agent trading is at an earlier stage. Currently, about 200,000 customers have opened Agentic Trading accounts, generating more than $1.6 billion in cumulative notional trading volume. Its commercial value mainly lies in lowering the threshold for strategy execution, increasing trading frequency, and driving more asset classes to be used within the platform.

These two paths expand trading scenarios and trading tools, respectively, but future profit contribution still depends on sustained activity, fee levels, and customer acquisition and technology investment. The on-chain business has already begun to supplement current-period revenue, while AI agent trading still needs to further prove that it can generate stable new demand and revenue.

Customer Assets Continue to Grow, While Active Users and Deposit Pace Diverge

Robinhood's customer asset base continues to expand. Q3 total platform assets rose 19% year-over-year to $396 billion, funded customers grew 7% to 28.7 million, Gold subscribers rose 34% to about 5.2 million, and subscription penetration reached 18%. Retirement account assets rose 51% year-over-year to $36.6 billion, also indicating that long-term fund business is building scale.

However, quarterly net deposits fell from $21.7 billion in Q2 to $15.7 billion, and monthly active users fell to 13 million, down 800,000 year-over-year and 1.1 million quarter-over-quarter. The divergence between asset growth, paid user growth, and overall active user numbers means that Robinhood currently relies more on customer asset accumulation and deep usage to drive revenue.

From October through the earnings disclosure, net deposits had already exceeded $13 billion, of which about $6 billion came from the Dell family's contribution to the "Trump Account." This capital reinforced asset expansion, but its source is concentrated, and the sustainability of future growth will still depend on everyday customer deposits, account usage, and conversion into financial services.

Gold, retirement accounts, and banking services help increase recurring revenue and cushion trading cycle fluctuations; credit card and lending businesses will simultaneously bring provisioning needs. The platform's expansion into comprehensive financial services is improving the revenue structure while also increasing the costs and risks that need to be managed.

The Key to Q4 Lies in Monetization Improvement, Not Merely Maintaining Trading Volume

The company lowered the upper end of its full-year adjusted operating expense and stock-based compensation guidance by $25 million, narrowing it to $2.675 billion to $2.750 billion. However, according to company disclosure, this still corresponds to roughly $765 million to $840 million in Q4 expenses, higher than $664 million in Q3. The downward revision to expense guidance reflects efficiency improvements, but investment pressure in the fourth quarter remains.

On the earnings call, management said that in early October, average daily trading volume for equities, options, and crypto was roughly close to Q3 levels, while average daily event contract volume grew about 10%; at the same time, trading spreads narrowed slightly at the start of the quarter.

This means that maintaining relatively high trading volume is not enough to guarantee simultaneous revenue acceleration. If the product mix continues to tilt toward businesses with lower monetization levels while investment in new products and account services increases, profit recovery will still require stronger revenue increments.

The impact of interest rates is also two-sided. Q3 net interest income fell 9% year-over-year to $415 million, and although margin financing and securities lending balances grew 59% to $22.1 billion, asset scale expansion still did not fully offset the impact of securities lending activity and interest rate changes. Future higher rates may support part of interest income while continuing to constrain crypto and other risk asset trading demand.

Robinhood's transformation has made substantive progress: prediction markets nearly offset the year-over-year loss in crypto revenue, Robinhood Chain has begun contributing net revenue, and Gold and long-term customer assets continue to expand. But the market's demands on this growth model are also rising. Whether the valuation can gain stronger support going forward will depend on whether new businesses can drive continued earnings-per-share growth after covering the gaps in legacy businesses and expansion costs.