Robinhood Markets Inc. tumbled in extended trading Tuesday after reporting third-quarter revenue that fell short of Wall Street estimates as cryptocurrency transactions plunged from the preceding period.

Shares of the brokerage slumped 9.2 per cent to US$36.02 at 5:26 p.m. in New York, below the US$38 initial public offering price in late July. 

Crypto transaction revenue totaled US$51 million, a 78 per cent plunge from the second quarter, according to a statement from Menlo Park, California-based Robinhood. Total revenue was US$364.9 million, missing the US$423.9 million estimate of 10 analysts surveyed by Bloomberg. Funded accounts totaled 22.4 million as of Sept. 30, a slight decline from the end of the previous quarter. 

The latest quarter was a test of Robinhood’s potential as retail investors moderated their trading activity after a sizzling first half, fueled by January’s meme-stock run-up and a subsequent rally in Dogecoin, a virtual currency that was created as a joke. 

“If this quarter is a hint of what’s to come, in terms of volatility, I would expect sentiment and the valuation multiple to drop,” Mike Bailey, an analyst at FBB Capital Partners, said in a note to clients. “The Robinhood sales miss contrasts with the more favorable trading revenue for the big banks and brokers, which may have led investors to anticipate higher trading volumes for Robinhood.”

The more muted trading environment may endure through year-end, Robinhood said in the statement, forecasting that fourth-quarter revenue may be less than US$325 million. 

‘MARKET CONDITIONS’

Robinhood, led by Chief Executive Officer Vlad Tenev, had already warned investors in August that third-quarter trading activity would slow, as would the pace of new account openings.

“We don’t expect our growth to be linear -- we do think it’s going to ebb and it’s going to flow,” Chief Financial Officer Jason Warnick said on a conference call with reporters. “It’s going to be highly dependent on things like market conditions and volatility.” 

Robinhood’s quarterly net loss of US$1.32 billion, or US$2.06 a share, was largely attributable to stock-based employee compensation in the wake of the IPO, he said. The brokerage brought on about 21 per cent more employees in the period compared with the second quarter, in areas including engineering, customer support and compliance. 

Crypto has become more critical to Robinhood’s growth. Last month, the brokerage said it planned to offer crypto wallets, a tool that allows investors to send and receive digital currencies. The waitlist for that product has topped 1 million customers, the company said previously. 

While crypto revenue fell considerably from the previous quarter, it still increased about 10-fold from the same period a year earlier.