Welcome back to Monitoring the Situation. We've got a big situation to monitor and that's Robinhood's earnings. They came out yesterday. We are joined today by CEO Vlad Tenev. Vlad, thank you so much for coming on the program.
Always a pleasure, or it's a pleasure for the first time.
Yeah, we look forward. I mean, this will be the first of many, I think, appearances that we will have from big CEOs like you. You had the earnings call yesterday. Let's just start with the market's reaction. It was a rosy tone on the call. You had a good combination of analysts as well as some retail holders asking questions. You did an in-person outdoor earnings call in Menlo Park. I think some of the New York analysts were jealous of that location. A lot of things that you talked about. What do you think the market got out of the call and why are we seeing the price action today?
Yeah, look, I think markets are generally short-term oriented. They look at the ephemerality of quarter to quarter. And no doubt, if you take a short-term perspective and you take the macro environment, you've got the SaaS apocalypse, you have conflict in Iran, and we've had to deal with all of that. But what we look at is the long-term enduring trends of our business. And we're really building a generational company that's transforming financial services. And we're right at the beginning of what's going to be a 100 trillion plus great wealth transfer from older generations to younger. And if you look at the pieces that Robinhood is positioning as a business for our customers, we want your whole family to be on Robinhood. You know, we started out as mainly a millennial trading product by offering free trades, but you look at the ecosystem that we've put together. We've got custodial accounts for your children, Trump accounts coming for your newborns. We've got what I think is the best retirement product on the market, digital advice, human advice with TradePMR, what I think is the best credit card on the market, and Robinhood banking has just been ripping, zero to two billion in assets in just a few months with a 40% direct deposit attach rate. So you put all this together and the ingredients at all stages of product development are there. The product engine is humming. So you know, sometimes markets can pay attention to different things, but we're focused on the long term and we think that we've just made tremendous progress and are continuing to accelerate.
Vlad, I want to ask specifically about the earnings in a second, but when you look at the traditional brokerages that service investors, where, you know, I guess the question for 2013 when you founded as well as now, where is the opportunity? Like what was missing that you're looking, you know, and not just looking but do bring to the table with Robinhood?
Well, for a long time, I think the value proposition for Robinhood when we were a monoline, you know, trading product was that we were offering zero commissions and we had a really nice mobile interface. And the combination of that was very, very powerful. And basically what happened in 2019 was due to the disruption that we were forcing through. I mean, if you look at new customers, new download market share at that time, I think we were at the plurality of the industry. So you know, the big guys were forced to replicate our model. They all went zero commission pretty much within weeks of each other. And this was, I don't know if you guys remember this, but it was like Interactive, Ameritrade, E-Trade, all these companies within weeks of each other lowered commissions to zero. Some of them, like TD and E-Trade, long kind of storied franchises, did not continue as standalone companies. They got gobbled up by larger incumbents and their stocks dropped 30 plus percent in one day. So, you know, you look back on this and it's like there's no analog in business that I can think of. It would be like if every car maker suddenly within two weeks of each other said, 'We're going full-on electric.' You know, hasn't happened, but I think that's how momentous it was to me. And as we've diversified, what we've tried to take is that core recipe. If you think about a Robinhood product, what you should expect is that you're getting the best pricing, the best value in the industry, and the best customer experience. And I think if you can put that together, that's sort of like the magic that we can deliver to our customers. And it's wrapped together. If you're a Gold member, you should expect even more superlative value for just $5 a month or $50 per year. So you think of another defining product that we've had, the Robinhood Gold card, it's the same combination of things that I think have caused it to resonate so much with our customers. The value prop economically is super clear and easy to understand. 3% cash back on all categories. You know, you go up to someone, I don't know if you guys have the Gold card, but if you have a friend that has it, and you ask them, 'Why do you use this card?' It's very simple. 3% cash back, all categories. I don't have to think about it. It's very, very competitive. Best you can get. But then the customer experience, a really nice UI, the virtual cards, the family features. I think each one of these alone, value and experience, can make a good product, but if you put them together, that's when you get a superlative product.
It's interesting. I think you said on the call as well that it's the heaviest card on the market. I don't think that's a decision you would have made if you hadn't looked into it. What did your research tell you about how, talk about the user experience like just having a heavy card?
Yeah. Well, my research about the heaviness of the card probably stems from me sitting around and thinking about it and maybe holding various things. I think that if you think about what happens to physical cards in a world where nearly all of the transactions are Apple Pay or digital, the physical card itself becomes more of a luxury good, right? It's like having a nice luxury watch, like a piece of jewelry. So, I think you have to think about them differently. And for a long time when card makers thought about credit cards, they would prioritize weight, right? They wanted to say, 'Okay, this thing is going to be in my wallet. I want to make it as light as possible. Let's make it out of the cheapest plastic.' And I think in a world that valued these things based on practicality, that made sense, but they've lost the practicality battle to digital payments through Apple Pay and Google Pay. So now what's left is maybe somewhat paradoxically the cards that have a little bit more design and flair and that you actually want to take out because you want to show people what's in your wallet. And so I think that will continue to do well and be an enduring trend just like things that have become fashion or luxury goods continue to do well. And of course, digital payments is going to continue eating the world, and I think every reasonable card strategy has to contend with that.
Let's talk about practicality a little bit. You've added a lot of new things to the platform, specifically for traders. Short selling has come onto the platform. I heard on the call you talked about giving dividend investors their dividends right after the record date, getting people their dividends sometimes as much as like 17 days early. I mean, that definitely adds up. It sounds like you're being reactive to what the customer wants. I think a lot of customers are asking when are we going to get AI being able to trade for me, getting agentic trading? What's happening there? And can we expect that from Robinhood this year?
Yeah, we're certainly looking into how to adapt agentic capabilities. And if you followed the progress of the Robinhood app, we haven't been too far behind the state of the frontier in adopting these capabilities and giving them to customers. So we've started rolling out AI functionality deep into the product last year and we have Robinhood Cortex, which is our family of AI products. It started with digests on the stock and crypto detail pages which aimed to answer the question why is the stock moving, and customers love those. Then we followed that up with you can chat directly to Cortex and it integrates very tightly with your account information. It can do actions on your behalf and it can pull from all of the data that we have on the platform, real live tick-by-tick market data and other company data to ground our answers so that we can make sure they're hallucination free. And of course now with Claude Code and all the agentic coding tools, the question is, you know, I started my career as a quant trader writing trading algos. What does it look like to make it super easy for anyone, even if you are not a developer or a quant, access to these tools? And I think nobody's figured it out yet particularly at consumer scale, but we'll be among the first. So you should see the first agentic products rolling out next month and continuing a drumbeat of refining them as we do throughout the year.
To what extent with those agentic products is it going to be driven by the customers saying this is the strategy I want you to implement and almost being able to, in the same way you said you used to code quant strategies, being able to say hey these are the stocks I own, if they dip more than 10% I want you to buy them whether I'm there or not, versus AI actually driving the strategy and saying hey this is a strategy that we think you might like. Is it going to be customer-driven or AI-driven?
Yeah. I mean, I think that's a good question and what I'll say is there have been sort of like customer-driven agentic light experiences that have been tried for many years. If you guys remember, If This Then That was sort of like the base form of it, of hey if this happens then place a trade. I don't think it's really resonated. And I think the reason is, you know, it's sort of in this messy middle where it's a little bit too complicated for someone that's just a casual investor and isn't super technical. For those people, if they want to just like put money away and make sure that it's invested passively on their behalf, I mean, products like Robinhood Strategies are as close as you can get to a set it and forget it, deposit money and have it invest product as there is out there. So, I mean, there's better fits for the casual folks and I think for the really sophisticated active trader folks, they were just not powerful or reliable enough to make a huge difference. So, I think with these products, you have this like messy middle or uncanny valley problem, which maybe is why they haven't gotten product market fit up until now. But as the capabilities of the models increase, then they become more powerful, which makes me think that there is a way to get the active trader use case and to make something legitimately useful for them. But the way we think about it, we spend a lot of time with these users. We put prototypes in front of them and we want to make sure they've got all the tools to succeed so that using any other brokerage becomes an irrational and irresponsible decision. So you'll see us continuing to iterate there.
But I want to ask you about the diversification of the platform. You know, in terms of transaction revenues, a lot historically, a high percentage of revenues have been from equities, particularly options and crypto. But if we can just put this on the screen for our viewers to see. Interestingly, this quarter, you just reported other transactions categorized as other actually exceeded the crypto revenue for the first time, and I believe a lot of the other is prediction markets. So just tell us about this growth and your views on prediction markets. Why did you go into this space?
Yes. So we were the first retail broker, or at least I should say among the first retail brokers, to go into prediction markets as a new asset class, new category. Ground zero for this new super cycle of prediction markets was the 2024 election. And we decided to do that because we personally felt very passionately that prediction markets were an asset class that provided traders a differentiated trading experience. So a lot of people trade around events. It's actually very, very common to do it on the equity side and futures as well. So the traditional events are the release of economic numbers, right? The Fed rate decision, the jobs numbers, the oil numbers. I mean, if you're like an old school trader, the day the oil number gets released is like a big day. Everyone's just kind of aware of it. Of course, you also have company earnings and then the election, where the election and other vote events like Brexit are among some of the highest volume days in our history. And so then you ask the logical question is, okay, if these events actually affect markets so much and people are hedging and trading around them, why don't we just like trade the outcomes of events directly, right? And if I have a better model for who might win the election, why don't I just like trade that directly rather than trading on proxies like the S&P or you know the price of crypto and enter prediction markets or event contracts. And I think the interesting thing besides allowing traders to specialize is that the information and the data that's produced by this trading activity is a source of public information that's interesting even if you're not trading. So you can, you know, pick up Robinhood app, look at the prediction markets and see what the world thinks the likelihood of an event like, you know, next Fed decision being a cut or, you know, a certain political party winning the election or even my favorite, alien disclosure happening sometime in 2026. Yeah, I mean, you can price that and get a real-time view of what the likely probability is. So we became very interested in this and we've just done a lot of product work to excavate it, to integrate it into our ecosystem and what you see here is the fastest growing business in Robinhood's history and I think we're still just very much at the beginning of this industry.
You talk a lot about these types of events that can be hedged but up to this point a lot of the volume has been sports. On the call, you said that you're starting to see that change a little bit. What do you think, where do you think the growth is going to come from in terms of people trading on prediction markets? Or is sports really going to be the key driver going forward?
I mean, I think sports are certainly interesting. It's an increasing part of the global economy, right? And you should also expect that, you know, there's a lot of questions about what happens in AI, automation, disruption. Sports, I think most people agree on, is like a safe and growing industry that probably won't be affected too much by AI disruption. So I think a lot of people think of sports as just this like entertainment thing, but what they're missing is entertainment, sports, and financial services are increasingly going to converge. Whether people like it or not, you know, and I'm not saying like that's necessarily a good thing, but it's the reality that the business world and the sports world are getting increasingly interconnected in many ways. That said, prediction markets are more than sports. And I think in the same way that they've disrupted traditional sports betting, you should expect to see this ability to price risk and manage probabilities in real time to be applied systematically to other industries, weather forecasting, insurance products. I think we're just at the very beginning and a new asset class tends to take decades to mature. I think prediction markets are going to look very, very different five years from now.
What about the profitability of trading prediction markets over the long run? Stocks have historically gone up. Taking a long-term bet on the US stock market has been profitable for most people over time and providing Americans access to that is generally viewed as a positive thing. The jury seems to still be out at least for the broader public on whether prediction markets are going to be profitable for their users. You have, I'm sure, data on this. Are users trading prediction markets profitably? Is it additive to their accounts despite the direct risk hedging that they're able to do now?
