Robinhood Stock Beat Expectations and the Stock Fell Anyway. Here's What Long-Term Investors Should Do.

Robinhood (NASDAQ: HOOD) reported its second-quarter results after the market closed on July 29, and the company posted sales and earnings that topped Wall Street's expectations. The company posted earnings per share of $0.62 on revenue of $1.31 billion, beating the average analyst estimate of $0.43 per share on revenue of $1.28 billion.

Robinhood recorded an earnings benefit of $0.14 per share in the quarter stemming from its deconsolidation of Robinhood Ventures Fund I, but even after backing out that one-time benefit, earnings per share of $0.48 still came in significantly ahead of the average forecast. Despite Q2 sales and earnings beats, the stock lost ground in subsequent trading. How should long-term investors view and respond to the stock's moves following its recent earnings report?

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What's next for Robinhood?

With its Q2 report, Robinhood revised its guidance for non-GAAP (adjusted) operating expenses and stock-based compensation down to between $2.675 billion and $2.775 billion. Previously, the company targeted adjusted operating expenses and stock-based compensation between $2.7 billion and $2.825 billion.

While moves from companies to cut spending can sometimes be a sign that management is adapting to a growth outlook that has become less promising, there's no real indication that is the case here. Robinhood says it lowered its expense outlook in response to new efficiencies it has achieved. The company also noted that the new efficiencies it captured had been used to fund its new Rothera and WonderFi businesses, so the operating efficiency improvements could actually be significantly better than the new, lower guidance range suggests.

On the heels of very strong growth momentum in Q2, Robinhood's guidance for lower adjusted operating costs and stock-based compensation looks quite encouraging. The business's second-quarter report showed strong growth momentum across virtually all vectors.

Sales were up roughly 32% year over year, buoyed by a 44% increase for transaction-based revenue. While transaction revenue for cryptocurrencies declined 38% year over year to land at $100 million, sales in the company's event contracts, options, and equities categories each posted very strong growth. Meanwhile, revenue from the net interest segment increased 9% year over year to $389 million, and the company's other revenue segment jumped 54% compared to the prior-year period to reach $573 million.

With Robinhood trading at roughly 35 times this year's expected earnings, the market is already pricing some strong growth into the company's valuation. Conversely, I think there's a good case to be made that the company actually isn't getting enough credit for its recent wins.

Robinhood has continued to record strong double-digit growth for total platform assets, net deposits, and average revenue per user. The company has also seen continued double-digit growth for Robinhood Gold subscribers, and it's still pushing into new business verticals that could help supercharge sales and earnings growth over the long term. While the market didn't have a bullish reaction to Robinhood's second-quarter report, I think it would be a mistake for long-term investors to give up on the stock at this point.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.