Robinhood shares set to fall as slowdown in trading activity weighs on revenue

Shares of Robinhood Markets Inc. (NASDAQ: HOOD) are set to open 6.9% lower on Wednesday after the online brokerage reported third-quarter revenue that fell short of analyst estimates. The slowdown was attributed to decreased trading activity on the platform amid broader economic challenges.

The company, which shot to fame for its role in the 2021 meme stock saga, posted revenue of $467 million for the quarter ended September 30. This represented an increase of 29% from the prior year period but missed expectations of $478.4 million, according to data from the London Stock Exchange Group (LSEG).

Robinhood has struggled to maintain the meteoric growth in trading it saw during the height of the pandemic. Transaction-based revenue dropped 11% year-over-year to $185 million in Q3, as equities trading fell 13% and cryptocurrency trading plummeted 55%. The number of monthly active users on Robinhood’s platform also declined 16% to 10.3 million.

Executives cited typical seasonal slowdowns around the November and December holiday period but also warned that interest revenue could decline by around $20 million sequentially in Q4 if current levels of securities lending and free credit balances persist.

The company’s net interest revenue nearly doubled in the quarter to $251 million, as Robinhood charged higher rates on margin loans in line with interest rate hikes by the U.S. Federal Reserve. This provided a buffer against the slowdown in trading activity.

So far this year, shares of Robinhood have gained 20%. But the stock remains largely flat on a year-over-year basis.

The online brokerage pioneered commission-free trading and gained millions of users during the pandemic. But its fortunes now appear tied to interest income as Americans reduce discretionary spending amid high inflation and rising rates.