Down 40%, Is Robinhood Stock a Buy on the Latest Dip?

Robinhood Markets (NASDAQ: HOOD) shares have continued to struggle, with the stock down about 40% from its all-time highs. It's trended downward since late September, and a disappointing after-the-bell third-quarter earnings report on Oct. 27 only compounded its malaise.

Let's take a closer look at the broker's results and prospects to see if this dip is a buying opportunity.

Crypto continues to weigh on results

For the fourth consecutive quarter, Robinhood saw a significant decline in cryptocurrency revenue, which took away from what otherwise was a solid report. Once one of the online broker's biggest growth drivers, its Q3 crypto revenue plunged 55% to $120 million.

Crypto trading is high-margin and not easily replaced with other revenue streams. As such, the company remains committed to growing this business. In fact, in June it completed its acquisition of WonderFi, which operates Canadian crypto exchanges Bitbuy and Coinsquare.

Meanwhile, it sees a big opportunity in tokenized assets following the launch of its Mainnet blockchain network in July. It is particularly optimistic about DeFi perpetuals, which are non-expiring crypto contracts that let you bet on rising or falling asset prices with leverage.

Overall transaction revenue jumped by 19% to $867 million. Robinhood's entry into the prediction market led the way, with event-contract revenue up sixfold to $173 million. Options revenue surged 31% to $399 million, while equity revenue jumped 41% to $121 million.

Net interest revenue declined by 9% to $415 million, while other revenue jumped 61% to $142 million. Robinhood Gold subscriptions rose 34% year over year to 5.2 million.

Total platform assets jumped 19% to $396 billion, and the number of investment accounts rose 9% to 30.4 million. Net deposits, meanwhile, grew at an annualized growth rate of 17% relative to total platform assets.

Adjusted EPS, meanwhile, fell 3% to $0.60. That topped the analyst consensus of $0.56 in adjusted EPS. The adjusted results excluded a $0.07 unrealized loss related to its venture capital fund.

Robinhood is the sole initial trustee and brokerage firm for Trump accounts, which completed automatic enrollment for nearly 70 million accounts in the third quarter. This does not mean the accounts are active, but children born between Jan. 1, 2025 and Dec. 31, 2028 are eligible for a one-time $1,000 government contribution. Meanwhile, the Dell Foundation has funded 25 million of these accounts with $250 each.

Looking ahead, Robinhood said Q4 was off to a good start, with October deposits up over $13 billion, including $6 billion from the Dell Foundation contribution. It said average daily volumes for equities, options, and cryptos were down about 5% from Q3.

Image source: The Motley Fool.

Is the stock a buy?

Outside crypto, Robinhood has been seeing strong transaction volume and driving growth with newer products like its prediction market offering, Gold accounts, and credit cards. Meanwhile, being a Trump account trustee has opened up another nice revenue opportunity.

The biggest issue for the company has been that crypto trading comes with high bid-ask spreads and much higher take rates, so the big decline in revenue it's seen over the past year in this segment hurts its bottom line. However, the company isn't sitting still in this area, and it will start to face much easier crypto comps starting in Q1.

The stock trades at a forward price-to-earnings (P/E) ratio of about 26.5 based on analysts' 2027 estimates. That's not a bargain-basement valuation, but given the opportunities ahead and the fact that crypto trading should no longer be a huge drag next year, it's getting close to the time when investors should start considering buying this growth stock. It likely has one more tough quarter ahead before growth accelerates in 2027.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool recommends Robinhood Markets. The Motley Fool has a disclosure policy.