Key Takeaways

• Robinhood Markets missed third-quarter earnings and revenue estimates because of promotions to gain new customers.

• The online brokerage expects the costs for promotions to grow in the current quarter.

• Shares of Robinhood Markets fell 15% Thursday morning but are still up almost 90% this year.

Robinhood Markets (HOOD) shares sank 15% Thursday, a day after the online brokerage posted worse-than-expected results as a promotion to get more customers impacted performance.

The company posted third-quarter earnings per share (EPS) of $0.17, with revenue jumping 36% year-over-year to $637 million. Both were short of consensus forecasts by analysts polled by Visible Alpha.

'Contra Revenue' of $27M on Customer Matches Dings Results

Robinhood noted that revenue was reduced by $27 million "due to matches paid to customers on transfers and deposits." Chief Financial Officer (CFO) Jason Warnick said in the earnings call that these "contra revenues" are anticipated to grow sequentially by a similar amount in the current quarter, before slowing next year, according to a transcript provided by AlphaSense.

Warnick explained that "customers love the matches we provide on asset transfers and IRA contributions, and we're seeing great payback periods on these matches." However, he noted that the company's Gold deposit boost "has not driven as much incremental customer activity as our other promotions."

Still, Robinhood noted that an increase in Gold subscriptions was the primary reason its "other revenues" gained 42%. Transaction-based revenues were up 72% on higher options, cryptocurrency, and equities trades. Net interest revenues climbed 9%.

Shares of Robinhood Markets fell from a nearly three-year high, but even so, they're up almost 90% year-to-date. They got a boost earlier this week when the company announced it was offering clients the ability to trade on the outcome of the U.S. presidential election.