Robinhood Q4 earnings top estimates but crypto revenue decline weighs on stock

Robinhood reported Q4 revenue of $1.28 billion, up 27% year-over-year but below the $1.34 billion consensus, and delivered EPS of $0.66 versus a $0.63 estimate. Transaction-based revenue rose 15% to $776 million while crypto revenue plunged 38% to $221 million; net interest revenue climbed 39% to $411 million, other revenue more than doubled to $96 million, adjusted EBITDA grew 24% to $761 million, and net income was $605 million (down from $916 million a year prior). Funded customers increased 7% to 27 million, total platform assets surged 68% to $324 billion, Gold subscribers rose 58% to 4.2 million and ARPU was $191 (up 16%); despite these operational gains the crypto slump weighed on sentiment and sent the stock down over 6% in after-hours trading.

Analysis

Market structure: Robinhood’s print shows a bifurcated business — recurring NII (+39% to $411M) and subscription growth (Gold +58% to 4.2M; ARPU +16% to $191) offset by a 38% drop in crypto revenue to $221M. Winners are balance-sheet/interest rate beneficiaries (SCHW, IBKR, HOOD’s NII), while crypto-native exchanges (COIN) and pure fee-dependent brokers are vulnerable if crypto volumes stay depressed. Higher platform assets ($324B, +68%) signal continued deposit inflows and supply of lendable assets, tightening securities-lending spreads and supporting NII unless rates fall sharply.

Risk assessment: Tail risks include aggressive regulatory action (SEC enforcement, broker-dealer capital requirements) and a crypto contagion shock that knocks custody/deposits — both could cut ARPU and force higher capital costs; probability medium but impact high. Immediate (days) risk is sentiment-driven drawdown; short-term (weeks–months) depends on rate path and Q1 crypto volumes; long-term (quarters–years) hinges on product monetization and retention of Gold subs. Hidden dependencies: securities-lending revenue, repo funding lines, and yield curve inversion; catalysts include CPI prints, Fed guidance (30–90 days), and crypto spot rallies.

Trade implications: Construct a core long-tilt to HOOD (2–4% position) financed by cutting pure-crypto exposure (reduce COIN exposure by ~50%) given HOOD’s diversified revenue mix; initiate a pair trade long HOOD vs short COIN for 3–6 months to capture relative resilience. Use options to shape risk: buy a 3-month HOOD 10% OTM put spread sized to cover 50–75% of the equity position cost; finance with a capped call spread if bullish. Rotate sector: overweight diversified brokerages and payments, underweight crypto exchanges and OTC crypto miners.

Contrarian angle: The market’s knee-jerk sell on crypto weakness likely overstates long-term damage — NII and subscriptions are recurring and could sustain EPS if crypto stabilizes; a 5–10% pullback in HOOD from after-hours levels may be an attractive entry. Historical parallel: 2022–23 crypto drawdowns punished crypto-reliant names while diversified brokers recovered faster once rates and deposit trends stabilized. Unintended consequence: increased marketing/acquisition spend could compress near-term margins even if top-line continues to grow.

Key Decisions for Investors

• Establish a 2–3% long position in HOOD within 5 trading days (buy shares or equivalent ETFs); set a stop-loss at -12% and scale to 3–4% if Q1 crypto revenue QoQ improves >10% or ARPU exceeds $200.
• Initiate a 3–6 month pair trade: long HOOD (notional 3%) vs short COIN (notional 2%), target relative return +15% if crypto volumes remain weak; close after 3 quarters or if COIN outperforms by >10%.
• Hedge downside by buying a 3-month HOOD 10% OTM put spread (buy 1 put, sell lower strike) sized to protect ~50–75% of the equity position; fund by selling a 3-month HOOD 25% OTM call spread if bullish.
• Reduce direct exposure to pure-crypto equities (e.g., COIN, CROWD) by ~40–60% and redeploy to diversified brokerage payments names (SCHW, IBKR) and margin/interest beneficiaries; re-evaluate after the next two Fed decisions (next 30–60 days).
• Set quantitative watchlist triggers: increase exposure if quarterly crypto revenue sequentially rises >10% and Gold subscribers grow >5% QoQ; cut exposure if funded customers decline >3% QoQ or total platform assets drop >8%.