HOOD Stock: Q3 Sales Surprise and What We Know
Robinhood's Q3: Growth Story or a Mirage?
Robinhood just dropped its Q3 CY2025 numbers, and on the surface, they look stellar. Revenue doubled year-on-year to $1.27 billion, beating estimates by 6%. Earnings per share also jumped, exceeding expectations by a solid 12.1% to reach $0.61. Operating margins nearly doubled, landing at a healthy 49.8%. The market cap sits at $121.6 billion. So, is this the rocket ship everyone's been waiting for? Not so fast.
The headline numbers mask a few concerning trends. Free cash flow took a nosedive, going from a positive $3.49 billion last quarter to a negative $1.59 billion this quarter. That's a $5 billion swing. While the company is still adding funded customers (26.8 million, up 2.5 million year-on-year), the growth rate is slowing. And while ARPU (average revenue per user) is up significantly—clocking in at $191, an 81.8% increase—that metric alone doesn't tell the whole story.
Digging Deeper: The ARPU Illusion
Let's talk about ARPU. An 81.8% jump sounds impressive, but how sustainable is it? Robinhood's ARPU growth has averaged 47.7% over the last two years. This quarter's spike is a major outlier. What's driving it? Is it increased trading activity from existing users, or are they squeezing more revenue out of each transaction? (Details on the specific revenue streams contributing to this ARPU surge are notably absent from the release.) If it's the latter, that's not exactly a long-term strategy for building customer loyalty.
And this is the part of the report that I find genuinely puzzling. The market reacted negatively. Shares traded down 2.8% to $138.75 immediately after the report. It's almost as if investors were hoping for more. But what "more" could they realistically expect? Perhaps they were anticipating even higher ARPU growth, or maybe they're concerned about the sustainability of the current trajectory. Robinhood (NASDAQ:HOOD) Surprises With Q3 Sales - TradingView
The retirement announcement of CFO Jason Warnick adds another layer of uncertainty. While CFO transitions are normal, the timing is interesting, to say the least. Is he leaving on a high note, or does he see something the rest of us don't? I've looked at hundreds of these filings, and a sudden departure of a key executive after a seemingly positive earnings report always raises an eyebrow.
A Fork in the Road
Robinhood's annualized revenue growth over the last three years has been a solid 46.4%. Analysts are projecting a more modest 17.9% growth over the next 12 months. That's a significant deceleration. The company is at a crossroads. They can either continue to chase short-term gains by squeezing more revenue out of their existing user base, or they can focus on sustainable growth by attracting new users and expanding their product offerings. Which path they choose will determine their long-term success. It's about 6% growth that they beat the estimates by, to be exact.
The slowing growth in funded customers is also a red flag. Over the last two years, Robinhood’s funded customers increased by about 6% annually—to be more exact, 6.2%. That's not bad, but it's not the hyper-growth that many investors have come to expect from tech companies. Robinhood needs to find new ways to attract and retain users, especially as competition in the online brokerage space intensifies.