Robinhood (HOOD)

Financial services company Robinhood (NASDAQ:HOOD) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 100% year on year to $1.27 billion. Its GAAP profit of $0.61 per share was 12.1% above analysts’ consensus estimates.

Company Overview

With a mission to democratize finance, Robinhood (NASDAQ:HOOD) is an online consumer finance platform known for its commission-free stock and crypto trading.

Financial technology companies benefit from the increasing consumer demand for digital payments, banking, and finance. Tailwinds fueling this trend include e-commerce along with improvements in blockchain infrastructure and AI-driven credit underwriting, which make access to money faster and cheaper. Despite regulatory scrutiny and resistance from traditional financial institutions, fintechs are poised for long-term growth as they disrupt legacy systems by expanding financial services to underserved population segments.

Robinhood’s competitors include Charles Schwab (NYSE:SCHW), Fidelity (NYSE:FNF), Interactive Brokers (NASDAQ:IBKR), Coinbase (NASDAQ:COIN), and private companies M1 Finance and Webull.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Robinhood’s 46.4% annualized revenue growth over the last three years was incredible. Its growth surpassed the average consumer internet company and shows its offerings resonate with customers, a great starting point for our analysis.

This quarter, Robinhood reported magnificent year-on-year revenue growth of 100%, and its $1.27 billion of revenue beat Wall Street’s estimates by 6%.

Looking ahead, sell-side analysts expect revenue to grow 17.9% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is noteworthy and implies the market is baking in success for its products and services.

User Growth

As a fintech company, Robinhood generates revenue growth by increasing both the number of users on its platform and the number of transactions they execute.

Over the last two years, Robinhood’s funded customers, a key performance metric for the company, increased by 6.2% annually to 26.8 million in the latest quarter. This growth rate is slightly below average for a consumer internet business. If Robinhood wants to reach the next level, it likely needs to enhance the appeal of its current offerings or innovate with new products.

In Q3, Robinhood added 2.5 million funded customers, leading to 10.3% year-on-year growth. The quarterly print was higher than its two-year result, suggesting its new initiatives are accelerating user growth.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns in fees from each user. ARPU also gives us unique insights into the average transaction size on Robinhood’s platform and the company’s take rate, or "cut", on each transaction.

Robinhood’s ARPU growth has been exceptional over the last two years, averaging 47.7%. Its ability to increase monetization while growing its funded customers demonstrates its platform’s value, as its users are spending significantly more than last year.

This quarter, Robinhood’s ARPU clocked in at $191. It grew by 81.8% year on year, faster than its funded customers.

A company’s gross profit margin has a significant impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors can determine the winner in a competitive market.

For fintech businesses like Robinhood, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include transaction/payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard customers, such as identity verification.

Robinhood’s gross margin is one of the best in the consumer internet sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and marketing during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 92.2% gross margin over the last two years. That means Robinhood only paid its providers $7.83 for every $100 in revenue.

Robinhood’s gross profit margin came in at 93% this quarter, up 7 percentage points year on year. Robinhood’s full-year margin has also been trending up over the past 12 months, increasing by 3.9 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Consumer internet businesses like Robinhood grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

Robinhood is extremely efficient at acquiring new users, spending only 9.9% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that it has a highly differentiated product offering and strong brand reputation, giving Robinhood the freedom to invest its resources into new growth initiatives while maintaining optionality.

Robinhood has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 50.3%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Robinhood’s EBITDA margin rose by 76.1 percentage points over the last few years, as its sales growth gave it immense operating leverage.

This quarter, Robinhood generated an EBITDA margin profit margin of 58.2%, up 16.2 percentage points year on year. The increase was solid, and because its EBITDA margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

In Q3, Robinhood reported EPS of $0.61, up from $0.17 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Robinhood’s full-year EPS of $2.41 to shrink by 11%.

Although EBITDA is undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Robinhood has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the consumer internet sector, averaging an eye-popping 49.6% over the last two years.

Taking a step back, we can see that Robinhood’s margin expanded meaningfully over the last few years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Robinhood burned through $1.59 billion of cash in Q3, equivalent to a negative 125% margin. The company’s cash flow turned negative after being positive in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

Robinhood reported $12.77 billion of cash and $15.67 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.37 billion of EBITDA over the last 12 months, we view Robinhood’s 1.2× net-debt-to-EBITDA ratio as safe. We also see its $14.01 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Robinhood beat analysts’ revenue expectations this quarter. We were also glad it expanded its number of users. On the other hand, its number of funded customers was just in line, full-year operating expense guidance is at the top of the previously-provided range (implied profits therefore at the lower end), and the CFO is retiring. Overall, this print had many moving pieces. Investors were likely hoping for more, and shares traded down 2.8% to $138.75 immediately after reporting.

Updated: December 4, 2025 at 9:32 PM EST

Before making an investment decision, investors should account for Robinhood’s business fundamentals and valuation in addition to what happened in the latest quarter.

Robinhood is one of the best consumer internet companies out there. First of all, the company’s revenue growth was exceptional over the last three years. And while its projected EPS for the next year is lacking, its admirable gross margins are a wonderful starting point for the overall profitability of the business. On top of that, Robinhood’s powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Robinhood’s EV/EBITDA ratio based on the next 12 months is 37.3x. There’s no doubt it’s a bit of a market darling given the lofty multiple, but we don’t mind owning an elite business, even if it’s expensive. We’re in the camp that investments like this should be held for at least three to five years to negate the short-term price volatility that can come with high valuations.

Wall Street analysts have a consensus one-year price target of $151.95 on the company (compared to the current share price of $137.03).