Key Highlights from Robinhood’s Q1 2024 Earnings Call
Company Strategy and Performance
Robinhood is focused on winning the active market, increasing wallet share with customers, and expanding internationally.
Retail trading market share increased in Q1, supported by product innovation.
Record net deposits of $11.2 billion were achieved, translating to a 44% annualized organic growth rate.
Gold subscribers reached 1.7 million, a record high, with 260,000 added in Q1—the fastest growth in the past 3 years.
Record revenues up 40% year-over-year and record GAAP EPS of $0.18 were reported.
Financial Results
40% year-over-year revenue growth and 14 points of margin expansion were reported in Q1.
Net income of $157 million or $0.18 of EPS was achieved.
Assets under custody reached a record $130 billion, up 65% year-over-year.
Strong Q1 net deposits of over $11 billion were more than double last year’s quarterly average.
In Q1, gold subscribers were 8x the average customer in terms of net deposits and had 5x the retirement account adoption.
Net income in Q1 was up 5x sequentially with disciplined expense management.
Future Outlook and Initiatives
Q2 is off to a strong start with nearly $5 billion in net deposits as of April, surpassing the total $17 billion in 2023.
Robinhood aims to continue delivering profitable growth throughout 2024.
The introduction of the Robinhood Gold credit card aims to increase wallet share among customers. Over 1 million people have signed up for the Gold Card waitlist.
Challenges and Responses
The impact of the SEC wells notice on Robinhood’s crypto business was addressed, emphasizing business continuity and compliance efforts.
The rollout of the new credit card is being managed cautiously to balance customer demand with risk management.
In response to a halt in the 24-hour market, Robinhood is committed to improving the resilience and reliability of its offering.
Questions and Engagement
The call included a Q&A session addressing shareholder questions from Say Technologies and analyst inquiries.
Question and Answer
Growth in New Deposits and Gold Adoption
Question
Can you elaborate on the momentum and growth drivers you are seeing heading into the second quarter, particularly regarding new gold subscribers and net deposits?
Answer
The company is experiencing strong trading activity across equities, options, and crypto, with continued momentum expected into the next quarter.
Net deposits are showing remarkable growth, with a diverse customer base and a significant portion of deposits coming from customers who have been with Robinhood for over a year and are unrelated to promotions.
Incremental Margin and Operating Leverage
Question
Is the 75% incremental margin (excluding SBC) a reasonable expectation for investors, and is there potential for further operating leverage despite elevated marketing spend?
Answer
The company is not providing guidance on incremental margins, but with about 90% of the cost structure being fixed, there is significant opportunity to drop incremental revenue to the bottom line.
Despite a substantial increase in marketing and investments for growth, Robinhood is delivering 75% incremental margins and sees further potential to expand margins in the future.
Gold Card Economics and Demand
Question
Can you provide more details on the economic model for the Gold Card, particularly in light of the attractive offering and the potential for a broader customer base? What are your expectations for profitability and transaction revenue?
Answer
The Gold Card aligns with Robinhood’s vision of serving all customer assets and financial transactions, and the company is confident in its ability to profitably monetize a broad range of potential new clients.
Robinhood expects to benefit from its scale, low customer acquisition costs, improved cost of funds, and deeper customer relationships, which will help in underwriting and potentially offering collateralized cards.
The company will take a prudent approach to the Gold Card rollout, starting with a limited number of customers and closely monitoring their usage and repayment activity.
Two-thirds of Robinhood’s customers have prime or higher credit ratings, indicating a high-quality customer base for the Gold Card.
Capital Allocation and Dividend/Buyback Policy
Question
Can you provide an update on your thoughts regarding capital allocation, including dividends, buybacks, and M&A, given your strong balance sheet? What are your hurdle rates and criteria for M&A?
Answer
Robinhood has a strong balance sheet with over $5 billion in corporate cash and investments, and it plans to deploy capital across three areas: organic growth through investments in the business, M&A opportunities to augment talent or accelerate the product roadmap, and returning capital to shareholders through dividends or buybacks.
The company will use its cost of capital as a hurdle rate for investments and is constantly evaluating its capital allocation strategy.
Crypto Business and Future Listings
Question
Can you provide more color on the crypto side of the business post the Wells notice, including any potential changes in strategy or considerations for listing additional assets?
Answer
Robinhood has been selective in listing crypto assets and is confident that the current selection does not include any securities.
The company has seen increases in volumes and market share on the crypto side, driven by improved communication of its competitive pricing and expansion into the EU.
The crypto team is actively working on the product roadmap to enhance the customer experience.
Surge in Crypto Volumes and Mix
Question
Can you discuss the nature of the surge in crypto volumes observed in March and whether similar spikes are expected in the future? What is the current mix of crypto volumes between the EU and the U.S.?
Answer
Crypto activity tracks the broader market, and the company does not speculate on future crypto market trends.
Robinhood anticipates less cannibalization from index options as they trade around the clock, and the company plans to offer competitive and profitable economics for these new products.
Index Options Rollout and Economics
Question
Are you still planning to roll out index options later this year, and what are your expectations regarding the economics and potential cannibalization of existing options trading?
Answer
Robinhood will launch index options in Q4, along with futures, as part of its commitment to providing active traders with the best tools and value.
The company aims to make the economics of index options very competitive and profitable, and it is working on the pricing structure for these products.
Robinhood does not anticipate significant cannibalization from index options due to their 24/7 trading availability.
Customer Acquisition and Promotion Strategy
Question
Do you believe asset-focused promotions like the current deposit match offers can be a sustainable long-term strategy, and are there other behaviors or areas where promotions might make sense in the future?
Answer
Robinhood’s data science and product analytics capabilities allow for a deep understanding of promotion effectiveness and customer behavior, supporting the sustainability of asset-focused promotions.
The company is pleased with the payback periods on its current promotions and expects to see more creativity and innovation in this area.
The highly scalable platform and attractive paybacks make asset-focused promotions a durable strategy for Robinhood, and the company believes it has a competitive advantage in this area.
Characteristics of Customers Transferring from Other Brokerages
Question
Can you discuss the customer cohort that is transferring from other brokerages, including their characteristics and reasons for choosing Robinhood?
Answer
The customers transferring from other brokerages are generally similar to the existing customer base, but they come in with higher average balances, indicating the quality of assets being brought to Robinhood.
These customers are engaging with Robinhood’s products in a way that generates revenue, as evidenced by the payback periods on promotions.
