CEO Vlad Tenev on Robinhood's Record Year (+200%, ~$100B Market Cap)

Did I say that?

Robin Hood was pretty much an options, crypto, and equities business, and now we have 11 business lines that generate $100 million in annual revenue or more.

Of your finances.

One is a big upgrade to prediction markets. You can see prediction markets now on web, so that makes it a lot easier for people to engage and interact with our prediction markets. The second thing is the ability to trade individual player actions. So the sports experience in Robin Hood is just getting much deeper and much more dynamic.

I can sign it for you. I actually have about 75 copies in there.

If there is a solution.

That's a tough question.

Happy to be here. Thanks for having me in Robin Hood's HQ.

Yeah, you're talking about prediction markets and Bitstamp. Very different business lines obviously, but if you look back at the time we went public, Robin Hood was pretty much an options, crypto, and equities business. And now we have 11 business lines that generate $100 million in annual revenue or more. So I think the story is, for a long time we were criticized that we were a business that would do well when markets were going up and interest rates were going down, as was the case in 2020 and large part of 2021. But what happened when interest rates went up and we had the reversal of most of the trends that were powering our business and our IPO during COVID, we had to bear down and pivot our business into one that was more all-weather. So the Robin Hood you see today is much more diversified, where we have 11 business lines that are at scale and a couple more that are in that $10 to $100 million range but that we feel are going to grow over time. I like to use the analogy of automobiles. Maybe a couple years ago we were a V6, then we went to a V8. There's not a lot of automobiles with 11-cylinder engines, but we're pretty close to a V12. And then maybe one day soon, W16, like a super hypercar, and then I'll have to find a new analogy. We'll have to do jet planes or rockets or something.

Yeah, I mean, you can slice it a couple of different ways. One way to look at it is how much of our business is generating revenue from transactions. So we have transaction revenue, which you can think of as trading commissions, rebates from market makers, payment for order flow. We have a card product, so we earn interchange from swipes, and those are all money we make from every transaction. Then there's also net interest revenue, which you can think of as money that we make from being the custodian of assets and also lending against those assets. So we have a spread that we take on the cash that we hold on our platform. That's probably the simplest one. We offer a great yield on cash. Right now, I think 3.5% with some added incentives on top, which still gives us 75 basis points for ourselves. The cash sweep program, we call it the high yield offering, has gone from basically nothing in 2022 to tens of billions of dollars under custody. So that's grown into a big business. The margin book, which is a tool that active traders use to use leverage on their portfolios, we weren't really that competitive on margin up until 2024. Then we really started competing on rates and user experience, and now the margin book has well more than doubled in the past year and grown into a big business. Robin Hood Gold itself, which is a subscription product, we're up to 4 million gold subscribers. At this point, 15% of all our customers are Robin Hood Gold subscribers, and of the new customers that join on a quarterly basis, it's like upwards of 40%. So we've really done a good job. The gold subscription itself is now a nine-figure business. That's really before we've made significant progress on expanding Robin Hood outside the US. It's still very much a US business, and very little progress, sans Bitstamp which is our institutional business, on expanding from retail only to business and institutional. So if I think through Robin Hood's trajectory, I think right now the engine behind our business is active trading. That's the first area where we're targeting being number one. We want to be the number one business for active traders. But we don't want to just stop there because not everyone trades. The second arc of our business, we call it, is number one in wallet share for the next generation. We really want to be the place where you put all of your money and we want to handle all of your financial needs. That's where we track assets under custody and gold subscribers. We want to be a big platform with lots of assets serving all of your financial needs. Then the third arc, which is the longer-term one, I call it our 10-year arc: how do we go from US primary to fully global, and retail only to business and institutional? I think if you look 10 years from now, we see a world where more than half of our revenue could be outside the US, and also, more than half of our revenue could be business and institutional rather than retail. So there are multiple vectors by which we could grow the business by 10x, and I think we have a plan to pursue all of them.

Of your finances. Yeah. We view it really as can we apply technology to cut down costs and at the same time give you the best customer experience so that you just don't have any reasons to move money outside of Robin Hood. You have plenty of reasons to move it in, but Robin Hood products and services can serve you better on platform, and you shouldn't have to withdraw money to your bank account or to another service because it should just be a no-brainer to keep it with us.

We released a few things. One is a big upgrade to prediction markets. One of the things is you can see prediction markets now on web, whereas in the past you had to be logged into the app, which I think one of the big use cases of prediction markets is not just as a trading product but almost as a news media product, a source of information. So that makes it a lot easier for people to engage and interact with our prediction markets. The second thing is combos for sports and the ability to trade individual player actions. So the sports experience in Robin Hood is just getting much deeper and much more dynamic.

Very, very similar. And I think the other thing that gets me excited about that is you can imagine doing it for any category of prediction markets, not just sports. So these contracts over time will get much more personalized and specific, and you'll get into things like bespoke insurance products, which I think will be really cool. And then the other thing we released was Robin Hood Cortex. Now, you've seen Robin Hood Cortex is our AI model. You've seen us do a few things that are AI powered in the app. We've had Cortex stock and crypto digests which explain to users exactly what's going on with a stock in real time. And then we've also added Cortex powered screeners and indicators on Legend, which is our pro trading platform. Now you can talk directly to Cortex. So basically, Cortex has an interface in the app which has full context of all of your financials and also real-time market data. It knows about all the tradable stocks and prediction markets and instruments, and it can do stuff for you. For example, if you want to scan through the entire universe of traded symbols and place a trade, you can just ask Cortex to do that with your voice. So it's like a full AI assistant that has super intelligent financial knowledge at your disposal.

I'm excited about that one because there's just a lot of times where I have a specific question and I don't have a way to easily take all of my financial data, put it into ChatGPT or another AI model, and get a good answer without doing a whole bunch of work. So this gives you that type of intelligence where all of your financial data is.

Yeah, I think one of the things we spend a lot of time talking about is we have to do two things that are simultaneously somewhat challenging: make sure we grow with our customers. We don't want someone to just be 24 years old opening a Robin Hood account and then graduating to Schwab or something like that. That means we have to actually add more products and features as those customers grow and their lives get a little bit more complicated so we can serve them there, while at the same time, as we do that, make sure the product is still attractive to someone that's starting out for the first time. So we don't want to lose the next generation because a lot of our predecessors get into this trap of being a generational company, and I think that's certain death. Eventually, nobody's figured out how to live forever, so their kids are going to inherit the money, and their kids are probably less tied to the legacy brokers than their parents and grandparents. So I think it's simultaneously growing with our customers, making sure we add the products and services, while also making sure we pay attention to the next generation and continue to be relevant for them and add all the new things that get the 18-year-olds and the 24-year-olds into the markets.

I think young people love prediction markets obviously, but we also see a lot of people in their 40s and 50s engaging with prediction markets. You do tend to see young people adopting technology sooner and earlier and just being open to trying new things. But I think the reason we got into prediction markets was we were just very interested in it. It's right that it's turned into a young person thing, but I didn't really see it going that way necessarily. You look at some of our competitors, some of them have been offering prediction markets for quite a long time. I mean, you look at even the big guys like Chicago Mercantile Exchange, Interactive Brokers, but really with prediction markets, it was the 2024 election that was ground zero. That was the time that everything changed because up until that point there wasn't an event big enough to actually bring in a lot of customers. The presidential election just started it all really and created this new prediction market super cycle. A lot of it now is sports, but we see a world where prediction markets can disrupt multiple gigantic industries, not just sports. I was talking to someone last week, and you might know Robin Hood just added weather prediction markets on the platform. Nobody really thinks of using weather prediction markets in this way, but you can trade and hedge fire risk, you can hedge hurricane risk. If you think about the process of insuring yourself against a fire or a hurricane, it can be very expensive and cumbersome. You have to talk to a broker on the phone, and the contracts that we have available right now are already competitive with some of those products, and this is before they get more bespoke and personalized. So I see a world where the insurance industry can just be disrupted by a lot of these products. There's a lot more to build. We're still pre-institutional adoption at large scale. I think that it's still early innings in the prediction market super cycle.

I think you definitely make a good point that the shape of something is not clear. There's definitely been a lot of questions and a lot of things that we have to work out, from market integrity and what kinds of contracts lend themselves to easier spoofing and manipulation than others. For example, you can look at mention markets and say, well, if someone's aware of a mention market, then they can just say the things, right? We've been generally pretty careful about what we list. I think the thing we want to make sure we get right is integrity because if people are concerned about market integrity, then they stop participating in the markets, and that makes everything downstream a little bit more challenging. It's harder to pull liquidity, prices get worse, customers are reluctant to participate. So I think there's probably more that can be done, but I do think we've got the tools to do it. If you look at other asset classes like equities, we've had to do surveillance and market integrity and monitoring for insider trading for many, many decades. So I do think this is one thing that the industry is poised to do, and I think we'll do a pretty good job of it. There might be some twists and turns where we settle on some common standards and common ways of doing things.

I saw some clips from that.

Yeah, I mean, my take on that is COVID was a little bit idiosyncratic. There were a couple of waves of activity that I remember. One of the waves was companies that had filed bankruptcy. There was a little bit of a spike of activity around Hertz, for instance, which hit the news cycle. In hindsight, that was like a negative criticism of Robin Hood: we were facilitating making it easier for these people to invest in bankrupt companies. I think we've done a lot to make it clear, 'Oh, this company has filed bankruptcy,' because my general philosophy is we want to make it easy for people to do what they want to do, so long as it's compliant, but we should also give them the information so that they're aware of what they're doing. It turns out in the Hertz case that those traders made money through an interesting contortion of bankruptcy proceedings. But again, that was a little bit of a trend. Then there were the companies that got hit hard by COVID, and maybe in the past the government could have bailed them out, but this time they didn't. So I kind of think of it as a retail bailout. Rather than the companies getting the money as they had in the past, retail investors got money in the form of stimulus checks, and a lot of that went into brick-and-mortar retailers like GameStop and AMC, and also the airlines like American Airlines was a trending stock at that time. There was a component of nostalgia associated with it. People were familiar with the names. Maybe millennials remember a world where they would go to the movies and go into GameStop and shop for games, and they kind of missed that because everyone was locked up at home. Mixed in with some actual due diligence where some people were very systematic about understanding what the Fed was going to do. There were a lot of people broadcasting and doing deep intelligence about who's buying the stock and what the prospects are. All of this culminated in the GameStop meme craze, followed by the inflection of crypto activity that culminated in our IPO in the middle of 2021. The feeling I got in 2021 was it felt very unstable in a sense. The thesis behind why people were investing in these companies were ephemeral theses that had to do with the state of affairs at the time, whereas now it feels a little bit more meaningful. We're in the middle of a big technology disruption wave with AI. The feeling I get, and I think many people get, is that we're still pretty early in that. Of course, there are talks about whether we're in an AI bubble, but if you look at how many chips are being produced, how much inference is being purchased, how many weekly active users ChatGPT has, it does seem like there's actual substance and real revenue and real products behind it. The companies that retail is investing in are companies that by and large have real revenue and real growth. So I think it does feel qualitatively different. I juxtapose this: I think Robin Hood, for better or worse, is kind of a bellwether for what retail is doing. You look at our business right now, we've got about $350 billion assets under custody, and it's fairly well diversified. The bulk of it is in stocks, and we have a little bit of crypto as well. If you look at the volumes, they're really spread out. We're seeing record trading volumes pretty dispersed among a lot of different stocks. Whereas in 2021, Robin Hood was much less diversified. We had higher concentration in crypto, particularly Dogecoin, and a lot of the activity was much more concentrated in stocks that were meme story stocks. So I think the health of the retail investor has improved. I don't want to say that retail investor has grown up and matured because I think retail investors have always been smarter than people give them credit for. But the maturation of the retail investor has kind of mirrored the maturation of Robin Hood, the business. We've gotten more diversified, they've gotten more diversified, and there's a much more stable foundation underneath the activity and also our company.

I think being public gets a bad rap in many ways. I don't know. You probably talk to a lot of people, some of which are public, and if you ask anyone whether they like being public, they'll probably say, 'No, it's terrible. It's just you have to do earnings. It's a chore. You can't do anything.' And I actually think it's incredibly powerful to be a public company for a couple of reasons. I think one, and we've tried to do this ourselves, if you start thinking about earnings as an opportunity to engage with your shareholders, both institutional and retail, you could do a lot more with it than if you're just going through the motions and thinking of it as a chore. So one year ago, we were kind of doing...

Exactly. And I think that's something that more companies should embrace. It's not just about the numbers; it's about telling the story and building that relationship with your shareholders. And when you do that, it can be a real competitive advantage.

Earnings the old-fashioned way, right? We had the Polycom, we had the script. I would read the script. We would take the questions over Polycom. Sellside analysts would be on the call exclusively. And then, you know, I was looking at the recordings and we have a even back then we had a community of retail fans that would listen to our earnings and stream on YouTube. I always looked at that, right? And it was Amit. Amit was one of the first, but there were a bunch of others as well. And I was just like sitting there looking at it and I said to myself, 'Man, I'm bored. And if I'm bored, the people watching this must be really bored.' And at one point the live streamer, I forget who it was, he kind of apologized to the audience. He's like, you know, I know it's a little bit dry. Sorry guys, but maybe we'll get to Q&A soon. And they would get to the Q&A, which would be the engaging part because we would be unscripted, even though the Q&A was also quite scripted. So, I was like, 'All right, let's tear this down from first principles and make it fun.' What's an example? What's an analogy? Something we could learn from and lift from maybe another industry that is similar to this but entertaining. And I thought, well, you know, it's kind of similar to an NBA playoffs postgame interview. You know, there's some differences but some similarities. Like you've had something happen whether it's a quarter or an NBA Finals game. You've either lost or you've won. It's either like a good quarter where you're beating and you have good things to say or maybe it's a bad quarter. But it's kind of entertaining either way, right? If you look at Anthony Edwards, it's entertaining whether he wins. He comes in and he's wearing his outfit and he's got his swagger and he's like, you know, we crushed those guys. I had 50 points. Or when he loses, he's shirtless and he's got the towel on his shoulder and he's just like the body language is good or bad. Maybe he throws some shade at the coaching staff or the teammates. But you want to watch either way. So, we asked ourselves, you know, how can we actually make this informative but also entertaining. And we started Q4 of last year was our first earnings call where we did live video and it was like in our office. It was sort of like one baby step. And then you fast forward to our previous earnings call was at the Chase Center. We had live video. We had live Zoom Q&A where retail investors would basically live stream and ask their questions live. And we had sellside analysts but also buyside investors and the media in there. You know, everyone always told me, okay, sellside analysts are the only ones going to these calls. And you ask yourself and you ask others why. Well, there's no good reason why. You know, the reasons are made up. Well, sellside analysts would get their feelings hurt. They would feel like they didn't have as much time if they're competing for question slots with retail investors in the media. So I think if you break it down from first principles and rebuild the experience, a lot of the constraints that people think exist aren't real constraints and you end up with a better product. So we went from I think hundreds of listeners on the old Polycom style earnings to tens of thousands maybe even a hundred thousand at the last one. So, it increased the actual audience of our earnings by multiple orders of magnitude. And then Open Door, you mentioned Open Door, they saw what we were doing and they were like, 'We want to figure out how to engage retail too.' So, they became the first partner that we actually not only live streamed their earnings and took questions live, but they live streamed it in our app on Robinhood to their retail shareholders. And so I think other companies are starting to see this and say, 'Okay, yeah, we want retail shareholders.' Retail shareholders become kind of defenders of the company when things get a little bit rocky, too. I mean, you kind of see it. And this is one of the reasons why I really want retail investors to be able to invest in AI companies because if you look at who's defending AI companies against controversy, it's basically AI researchers that work there or venture capitalists that are investing in them, but they don't have like a grassroots effort, a retail army that's actually supporting them. And I think that's a problem. I think that it's one thing that worked very well for crypto particularly when the industry was under threat from regulatory overreach. So many retail investors had access to crypto from the very beginning that there was like this army that became a significant voting block right and you know they own the thing so they want to protect it they want it to go up in value they wanted a clear regulatory framework and AI doesn't have that. AI is like one of the fastest adopted products but also one of the least popular. People are afraid that it's going to take my job, that it's going to affect my life negatively. I think a big part of that is there's no retail investment in AI. I think Google to some degree has patched that up a little bit by getting their AI efforts into gear. But yeah, aside from Google, you know, OpenAI, Anthropic, all the startups basically out of reach for normal people.

Did I say that?

LeBron James is one of my favorite players. I had a chance to meet him once, but he's kind of at the tail end of his career. I'd like to have a little bit more longevity than that.

I'll be sad when he retires cuz he's the one I think he might be the only NBA player that's older than me.

So, if he retires, my dream of being able to play in the NBA will be officially I'll be like it's unrealistic at this point. It's over.

It's done. Oh my god. And that's interesting. Okay, so that brings us to tokenization because I know that you had efforts earlier this year, especially in France with the release of offering I think you now offer stocks in Europe. Over 400.

1500.