Robinhood Markets (NASDAQ: HOOD) will report third-quarter earnings after the market closes on Tuesday, October 27, followed by a conference call at 5 p.m. Eastern. Analysts expect revenue to increase from a year ago, but earnings are expected to fall. That makes profitability a key issue heading into the report.
Investors will also be watching Robinhood’s growing prediction markets business, where customers can trade contracts tied to the outcome of specific events. It has already become a meaningful source of revenue.
Wall Street Expects Higher Sales, Lower Earnings
Analysts expect Robinhood’s revenue to rise more than 11% from a year earlier. However, earnings are expected to decline more than 9%. Simply put, Wall Street expects Robinhood to bring in more money but earn less profit. Robinhood’s report should help explain what is behind the expected decline.
Investors will want to know whether higher spending is temporary or likely to continue. They will also want to hear how that spending could help the company make more money later.
For example, investing in a new product can make sense if it attracts customers and eventually produces healthy profits. But shareholders need evidence that the investment is working. That is why management’s outlook could matter just as much as the quarterly results.
Prediction Markets Are Becoming a Bigger Business
One of the biggest areas to watch is Robinhood’s event contracts business. These contracts let customers trade on whether a particular event will happen.
The business generated $156 million in second-quarter revenue, more than Robinhood brought in from either stock trading or cryptocurrency trading during that period. That makes prediction markets much more than a small side business.
In June, Robinhood launched Rothera, an exchange and clearinghouse licensed by the Commodity Futures Trading Commission. It is independently managed through Robinhood’s joint venture with Susquehanna International Group.
This week, investors will get another look at how the business is developing.
They should watch how many contracts customers trade, how much revenue those trades generate, and what management says about demand.
Repeat business will be especially important. A popular event might bring in customers for a short period. The bigger opportunity is getting those customers to return regularly.
Investors will also want to hear about competition and regulation, both of which could affect how quickly prediction markets grow and how profitable they become.
Don’t Overlook the Rest of Robinhood
Prediction markets may get plenty of attention, but Robinhood still needs its other businesses to perform. Last quarter, options trading revenue rose 29% from a year earlier to $342 million. Stock trading revenue jumped 95% to $129 million. Cryptocurrency revenue, however, fell 38% to $100 million. Those results show why having several sources of revenue matters. When one business slows down, another can help make up the difference.
This quarter, investors should look for signs that growth is coming from more than one area.
Customer activity will also matter. Are people adding money to their accounts? Are they trying additional products? Are they using Robinhood more often?
Rosenblatt analyst Chris Brendler recently started covering Robinhood with a buy rating. His positive view focuses on the company’s expansion beyond commission-free trading into a broader financial platform, including more products and opportunities overseas.
The earnings report will give investors a chance to see how that strategy is progressing.
Strong Results Don’t Always Mean a Higher Stock Price
Robinhood’s earnings history offers a reason to watch expectations closely. Continued growth in prediction markets would be encouraging. And so would stronger customer activity across the platform. But the clearest sign of progress would be a convincing explanation of how the company plans to grow profits alongside revenue. Investors already know the company is adding products. This report needs to show how those products can strengthen the business.
