The retail investing surge has yet to crest, it seems. And the embrace of cryptocurrency proceeds apace.
To that end, Robinhood’s S-1 with the Securities and Exchange Commission (SEC) shows that the platform model has lured younger investors and crypto enthusiasts. The listing is, as noted in this space earlier in the month, targeting a valuation of as much as $40 billion.
As of March 31, 2021, the company said in its filing, there were 18 million net cumulative funded accounts on the Robinhood platform, up 151 percent from last year.
To get a sense of the demographics: Robinhood said that from January 2015 through the end of March 2021, for more than half of those customers, the Robinhood offering represented their first brokerage account. The filing notes, too, that half of all new retail accounts in the U.S. were opened on Robinhood.
Robinhood said that 80 percent of the new accounts opened through 2020 and in the first quarter of this year came from the Robinhood Referral program, in which the company credits referring and referred customers with a stock reward (of one share each per referral), “with the potential value of each share ranging from $2.50 to $225.”
As noted in the filing: “This virality of Robinhood has continued — and even accelerated — since other major brokerages adopted our commission-free model beginning in October 2019.”
Drilling into assets under custody, the company said the totals grew from $14.1 billion at the end of 2019 to about $62.9 billion at the end of 2020. That 2020 metric in turn grew to $80.9 billion at the end of the March quarter in 2021. The bulk of those assets remain in equities, which surged from $11.7 billion in 2019 to $65 billion at the end of the most recent quarter. But it’s worth noting that the embrace of cryptocurrencies has widened. At the end of 2019, cryptos as a class of assets held under custody stood at $414 million; at the end of the most recent quarter, that number was a bit more than $2 billion.
The Shift to Mobile
As has been seen with so many verticals, the shift to digital and — and specifically mobile channels — has been apparent in investing. The company cites data (from FINRA) showing that 30 percent of overall retail investors in the United States have placed brokerage orders using a mobile app. But within the 18-34 demographic, according to the S-1, that number grows to 59 percent.
The cumulative net deposits, as measured by cohort, are also growing – which represents familiarity with using the platform model, and also a desire to put more of one’s net worth to work in the market. (Perhaps it may be a case of FOMO?) The filing reveals that the 2017 cohort – Robinhood defines “cohort” as a group of customers who funded their accounts for the first time on the platform during a specified calendar month, quarter or year – deposited an average of $1,731 in the first year, but that figure grew to $6,127 by the end of last year. The 2020 cohort, though, had a bit more than $18,000 in deposits at the end of the year. Revenue by annual cohort grew as well, from $17 in 2017 to $130 by 2020 for that “class” – while for last year, the 2020 cohort showed annual revenue of $326.
The growing customer base and revenue contribution for installed members has helped the company generate $420 million in the first quarter of this year in transaction-based revenues, up more than 300 percent in the same period last year at $95.6 million.
But as is the case with any quickly growing company – and one where the regulatory environment is a shifting one – amid the risk factors disclosed by the firm: Revenue derived from PFOF (payment for order flow) and transaction rebates represented 75 percent of Robinhood’s total revenues in 2020. And for the three months that ended March 31, 2021, it represented 81 percent of the company’s total revenues in the latest quarter.
The company also notes in the filing that scrutiny of online trading – and specifically, “meme” stocks – has been on the upswing. Members of Congress have expressed concerns about PFOF trading. And, per statements from SEC Chair Gary Gensler, “push notifications” and other features of mobile apps may be under greater scrutiny, too.