Robinhood Markets (HOOD  ) declined by more than 10% following the company's underwhelming Q3 earnings report in which it missed on the top and bottom-line while warning about Q4. Robinhood is now down by more than 50% from its high and is now trading below its IPO price. The company's poor results were somewhat surprising given strength and bullishness in the crypto markets in addition to strength in meme stocks and another surge of trading in short-term options.

Inside the Numbers

In Q3, Robinhood reported total net revenue of $365 million, badly missing consensus estimates of $431.5 million. It was also a big drop from Q2 revenue of $565 million due to a massive surge in crypto trading due to dogecoin's insane move. It also missed in terms of EPS with a loss of $2.06, while analysts were forecasting a loss of $1.37.

This was evident as crypto trading revenue dropped to $51 million in the quarter which was a sharp decline from $233 million in Q2. Overall, transaction-based revenue came in at $267 million.

According to Robinhood CFO Jason Warnick, Q2 was "one of those idiosyncratic market events where there's this massive interest specifically in Doge. We love it when those moments happen. It's a great way to bring a lot of new customers onto the platform but we're really thinking about investing in crypto over the long term. It's gonna be impossible for us to accurately predict...revenue on a quarter-to-quarter basis."

This quarter, there has been another batch of meme coins that are drawing similar interest, but they are not available on Robinhood. In fact, CEO Vlad Tenev stated that they would not be adding any more coins to the platform until there is more regulatory clarity on cryptocurrencies. Contrast this with Coinbase (COIN  ) which has been more aggressive in adding meme coins and whose stocks is up nearly 50% over the past month. Currently, Robinhood offers 7 coins - bitcoin, ethereum, litecoin, dogecoin, bitcoin cash, bitcoin SV, and ethereum classic.

Another disappointment was that Robinhood continues to see slowing user growth with 18.9 million active users, down from 21.3 million in Q2. The company sees another rough quarter in Q4 with expectations of 660,000 new accounts and revenues of $325 million.

Stock Price Outlook

One more reason for caution with Robinhood is that the company's lock-up period on shares is ending. 62 million shares will be available to be sold on November 10 and another 62 million will be unlocked on December 1. This could be another headwind for the stock price.

One silver lining seems to be that the company is setting a low bar for Q4 in terms of its forecast. And, Q4 has started off strong in terms of new highs in many cryptocurrencies and high levels of options trading.