An Update on Robinhood (6 months later)
The company's pursuits in crypto, investing, and broader financial services
Earlier this week, Robinhood announced a slew of new products at its crypto-focused To Catch a Token event in France.
This comes just a few months after Robinhood’s Lost City of Gold event in San Francisco, where the company rolled out products like on-demand cash delivery, an AI investment advisor, private banking, and the ability to see your net worth on one screen.
In December, I wrote about what was happening at Robinhood. We now have about half a year of additional game film. Given the recent product announcements, I figured it was a good time to revisit the original analysis and provide an updated perspective on where I think Robinhood may be headed.
Robinhood’s Mission
Six months ago, I wrote that Robinhood’s stated mission was to serve the active trader. Their mission now actually seems much broader: to be the financial home for the next generation. This still includes servicing traders, but it also involves providing security for long-term investors (across every asset class), offering banking rails, and extending credit.
My “aha” moment was Robinhood’s “net worth” demo – a screen that calculates your total assets on / connected to Robinhood and can update by the second. It’s addictive and entertaining. And for it to showcase your entire net worth, it requires that Robinhood be the home for all of your assets (not just those you’re actively trading). Understanding Robinhood through this lens – rather than that of just serving the active trader – can help put their newer product initiatives into perspective.
New Crypto Initiatives
The crypto announcements yesterday were exciting. Highlights include:
Staking on cryptoassets
Tokenized stocks, available to European citizens
Tokenized equity in private companies, with the first two being OpenAI and SpaceX
Robinhood Chain – an Ethereum-based layer 2, similar to Coinbase’s Base chain
Perpetual futures (for Europeans)
One clear message is that Robinhood views crypto not just as a new asset class, but as a technology for expanding access and distribution. Importantly, the product announcements serve both missions mentioned earlier. Perps are oriented toward the active trader. Tokenized stocks and tokenized private equity appeal to both traders and long-term investors. And Robinhood chain lays the foundation for the company to build a suite of even more composable financial products.
Another message seems to be: anything Coinbase can do, Robinhood can do too. Coinbase has staking? Robinhood does too. Coinbase has a chain? Now so does Robinhood. On the consumer fronts where Coinbase still leads – like the ability to borrow against your BTC using Morpho – it seems likely that Robinhood will soon follow suit.
Staking was the lowest hanging fruit. It creates a stickier crypto asset base and helps Robinhood better monetize each dollar that comes in for crypto (previously, crypto was the only category in which Robinhood had only one path to monetizing a dollar – i.e. just via trading fees). It’s also probably the easiest to model from a near-term cash flow perspective.
Tokenized equities, perpetual futures, and tokenized private companies are more challenging. I say this mainly because these products are only being offered to Robinhood’s European userbase and it’s not clear to me how many of Robinhood’s 25.9M accounts are European vs. American. Some of these – like perps and tokenized private company stock – are products that will be attractive to roll out in the US, once there’s greater regulatory clarity. But others, like tokenized equities, are more of a question mark.
The Bigger Picture
Robinhood has gone from strength to strength. It transformed from being the ridicule of the 2021 GameStop / memestock mania to a widely trusted, deeply respected financial institution in just four years. What a turnaround.
The company is clearly investing in long-term-oriented growth initiatives. Approximately 77M Americans are aged 18-35. That’s 23% of the population – and the number is growing. Robinhood wants to be their brokerage and bank.
Other recent initiatives support this perspective. Robinhood has invested heavily in acquisition campaigns to bring both more users and more assets onto the platform. It recently offered a 2% net asset match for new stock deposits. A similar intiative is live now for crypto assets. It’s waving management fees, offering sweepstakes, and boosting APYs.
Remember, every dollar that comes into Robinhood can be monetized in multiple ways. Each net new asset deposited creates an amplification effect on the company’s top line. And more users ultimately means more assets, especially as younger generations accumulate wealth. Winning the wallet for the recipients of a(n eventual) generational wealth transfer is an opportunity that’s hard to understate.
A Splash of Cold Water
Hopefully it’s clear that I’m excited by Robinhood’s future. That being said, I do occasionally take off the rose colored glasses. Many of these initiatives will probably take time to generate meaningful returns.
Robinhood ultimately has two levers for growth: increase ARPU or grow the number of users. The majority of revenue still comes from the active trader segment (what I’m proxying as users trading derivatives and crypto). I think the short-term effect of Robinhood’s recent initiatives will boost (active trader) ARPU, while the longer term goal is to increase the overall number of users.
As of its Q1 earnings, Robinhood generated $145 quarterly per every user on its platform. Increase ARPU by 15% – from $145 to $167 quarterly, or $580 to $667 annually – and it represents a $2.2B boost to annual top line revenue (assuming 25.9M funded accounts). Calculating these numbers in real-time, it doesn’t actually feel like I took off the rose glasses. The caveat, though, is that most of the new products that should meaningfully boost ARPU are only available to Europeans. If only 20% of Robinhood’s customer base is European, the actual top line growth would be closer to $450M. These numbers are illustrative but do directionally show the type of impact these products could have to Robinhood’s revenue growth.
Robinhood’s greater lever comes from increasing the number of users on the platform. Each 1 million customers added generates an additional $580M in revenue (using Q1 ARPU numbers, which was near an all-time high). And remember, Robinhood has 25.9 million accounts out of a potential 77 million in its strike zone. There’s significant room to run. But that will take time, especially if people already have sticky relationships with other brokerages or banks. My 2c is that it seems like the current market is pricing this as nearer-term growth than what may be realistic.
Long-term, I continue to believe that Robinhood is a generational company. Whether it’s able to fully execute on these plans in the next 6 months or 6 years is more of an open inquiry, but one that I’m excited to track nonetheless.