Sounds good. All right, so good morning, everybody. Thanks to everybody, both in the room and on the webcast, for joining us today. My name is Steven Chubak. I cover the diversified banks, brokers, and alternative asset managers. It's quite a mouthful at Wolfe Research. I'm really excited to introduce our next speaker, Jason Warnick, CFO of Robinhood. This is Jason's second time at the conference. I have to say, definitely one of the more exciting firesides that we had was two years ago with Jason. It happened to coincide with the news of the FTX fallout. Literally got off the stage, was about to start the next session. Someone's like, "Steven, you might not have seen, but Robinhood stock is down 10%." And he's like, "Here's an article, read it quickly." And Jason was kind enough to at least accommodate some of those questions.
So the good news here is it's always darkest before the dawn. Lots of exciting things happening in crypto, especially under a new administration. But maybe before delving into how under the new GOP that the changes on the crypto side, I did want to get a sense, given you did launch the prediction market, the presidential election market, tremendous success around that. How are you thinking about leveraging those opportunities going forward since that does feel like it's a new TAM that you can expect?
Yeah, it's a super interesting opportunity for us and really pleased with the response that we saw from customers. So over 500,000 customers funded and opened a derivatives account with us. And they traded 500 million contracts in roughly a week. So I would say it was a strong signal from our customers that they're very much interested in event contracts. And so the challenge for us is to take that learning and that enthusiasm for customers and go and innovate with broader selection. And we'll have to see how that plays out.
So maybe just focusing on the Investor Day for a moment. I'm sure that the prediction markets will get touched on, as will other opportunities that you're excited about. But just given your journey as a public company since 2021, what are you hoping to accomplish with the day? And why is now the right time to be launching this Investor Day?
Yeah, it's a great question. I mean, the last time outside of a quarterly cadence that we've had to really talk about where we are as a company and what our vision is for the next 10+ years was really the IPO. And I think we were in a very different position back then. Since then, we've diversified our business across many different dimensions. We've grown substantially. We've turned profitable. And I think we have greater clarity on the path forward and the opportunities that we have to pursue. And so we're going to use Investor Day as an opportunity to just update everyone on our 10+ year vision.
One of the priorities I know, which I'm sure we'll hear more about on Investor Day, is around Robinhood Gold. Currently, you have 9% of your customer base, at least, that are gold subscribers. The new customers coming in have been coming in at a much higher attachment rate, north of 20%. Now, maybe you could just speak to your long-term vision around gold adoption. What are some of the specific initiatives that you have underway just to increase that attachment level?
Yeah, I mean, so great point that newer customers are joining at a much higher rate. More recent figures are up to 40% attach on our new funded accounts. And so super exciting. The broader vision is that we think everybody should be a Gold member. If you're a Robinhood customer, we want it to be obvious that the benefits of the Gold subscription outweigh the cost of $5 a month. And customers have been responding. We're up to 9% attach, as you indicated. That's up versus about 5% a year ago. We're at an all-time high of 2.2 million subscribers and growing. And it's really exciting. And we're going to continue to add value proposition to the subscription. We have a couple of products that are coming soon with futures and cash-settled index options. And we've announced the pricing on those.
And if you're a gold member, you get slightly better pricing. And so you're going to get great pricing if you're not a gold member and even better pricing if you are a gold member. And the vision is that we want gold to be a compelling bundle of value proposition regardless of what the market backdrop is. And so in a high interest rate environment, it should be compelling. In a low interest rate environment, it should be compelling. And I think the inputs to that are just continuing to invest into the subscription. And the reason we like it is when customers join gold, they deposit more. They have larger balances. They discover more of our products. We've said that gold customers are five times more likely to open up a retirement account. And this leads to higher RPU, 7X the average customer.
We have a lot of reasons to be really excited about Gold and continue to invest in it.
And the other target that you guys have talked about in the past is a 20% net deposit rate. Admittedly, you've been running well north of that, closer to 40% over the last 12 months. As we think about some of the other opportunities that are still in their infancy, whether it's international, whether it's the active trader opportunity, do you see a credible case for a higher level of run rate organic growth relative to that 20%? What informs that view?
Yeah, I mean, so you're right. We've been running much faster than 20% for some time now. I think the 20% is certainly an observation of the growth rates that we've seen over the last several years. And that is inclusive of very different market backdrops. In a much slower period in 2022 and 2023, you saw 20% growth rates, but much faster more recently. When I think about the opportunity to continue to grow at an outsized pace, and when you look at incumbents, they're growing kind of in the zone of 5%. And so we're growing multiples faster. The reason I'm optimistic is we've got an incredibly talented team. Nearly half of our headcount is in engineers who are hired. They're some of the best engineers out there. And super excited about their ability to deliver. We have a lot of momentum.
And we have a massive market opportunity that we're just beginning to address. And to your point, there's taking share in the markets that we're in, but there's also markets that we haven't yet entered. And I think what comes to mind, there's several that come to mind. You mentioned international, and certainly that's an opportunity for us. But advisory is a huge opportunity as well, bigger than self-directed. And so I think there's a lot of reasons for us to be optimistic that we can continue to grow and take share.
We'll certainly delve into the advisory conversation in relatively short order. I mean, after all, it is a wealth symposium, but just was hoping to speak to how much of the improvement in organic flows has really been bolstered by your match offering. Those are quite unique in the marketplace. Attractive returns. You've cited very low payback periods or short payback periods, but I was hoping to unpack just some of the assumptions that you're making around that payback calculus. Now, what proportion of the NNA that you're seeing come into Robinhood is coming from the match program today?
Yeah, so we're growing really fast without the promotions and even faster with the promotions. More recently, we're kind of in the zone of 40% organic growth rate on net deposits relative to beginning of period assets under custody. About 30% of that growth rate is just organic, not promotion-based. And an incremental 10% is coming from the promotions. So said another way, about 25% of our net deposits have a promotion attached to it. And we do love the economics of the match promotions. You touched on assumptions on payback periods. We actually get to use actual data. We've been running these promotions for a while. We track the cohorts very closely. And for example, the 1% match promotions from 2023 have all paid off.
And so we continue to watch every promotion that we do in a customer cohort basis and just monitor that we continue to like what we see. And we love the promotions. Customers are responding to them. And we think the compounding opportunity as we continue to enter new markets and introduce our customers to more products can be pretty compelling. And one exciting thing is that we're seeing much larger account balances come in. The most recent promotion, we saw balances on average of $130,000 a customer. So it's very, very much higher than the average overall, which is around $6,000.
And then you did offer, just to drill down a little bit, like the near-term guidance around the matches that you're going to see a step up in the fourth quarter relative to the third quarter, but then the cost should begin to moderate, that second derivative improving. Now, what's driving some of that improvement? And just one area of pushback has been, how do you prevent bad actors from joining the platform? Folks that see 1% match, I'm just going to bring a large number of assets, and I'm going to trade very little, or the activity rates will be much more muted. So how do you protect the overall franchise from some of those bad actors?
Yeah, so first of all, we're tracking the return economics in total. And we love to bring over assets in whatever form and then win these customers over time. And as I said, we love the paybacks. The 1% is paying back in about a year. And the 3% match has been paying back in the kind of two to three-year zone. So feel really good about that. And sorry, the first part of your question?
Oh, yeah, just what's driving that moderation, that increase in return?
In the ramp. Yeah, so there's kind of broadly two categories of promotions that we were running: the match promotions on transfers in from other brokerages, and that's what I've been speaking about in terms of loving the economics on it. The second piece has been a 1% boost on cash deposits by gold customers, and it's a very different offer than the match promotions where we're getting literally, it's all incremental to see an account transfer their balances in. But for the 1% cash deposit boost, we have a pretty large recurring installed base of net deposits coming in, and so the amount of incrementality that's necessary to pay the 1% on the incremental dollars and the 1% on the installed base that we were going to get anyways was just too much for the incremental response that we were seeing.
I think it's important for companies that have a DNA around experimentation to double down when experiments work and to pull back when they're not working. I'm really pleased with the management team to make the tough call that we're going to discontinue the 1% bonus on cash, but we're going to find other ways to continue to deliver great economics for our customers. I think part of what we're seeing is the value proposition is so good at Robinhood already that offering even more didn't cause even more deposits to come in. We feel really good about the positioning of our offer for customers.
You guys had a lot of buzz too around the Active Trader Summit and certainly a lot of excitement. You launched Robinhood Legend, great branding brought it towards, at least just one man's opinion, futures and index options. We'll drill down into each of those. But I will say, as someone who's covered the space for a long time, there's very little public data around the active trader TAMs, whether it's a U.S. or globally. I was hoping you could offer some perspective before we drill down into some of the Robinhood-specific opportunities, just how you size the market, how you view the market, where's your market share today, and what is your North Star?
Yeah, we've been updating a lot of this work in anticipation of the Investor Day in a couple of weeks. So there's a little bit of a stay tuned in the way that I'll frame this answer. But what I tell you is on a revenue basis, the TAM for active traders is multiples of where we are today. It's a big opportunity ahead of us. You mentioned Robinhood Legend. That's our pro trader or active trader desktop application. One thing that's super exciting about that product is in the U.S., about half of the equities and options trading is done on mobile, which we've been competing for some time now. But half is on desktop, and we just haven't had a desktop offering. So by rolling out Legend and continuing to innovate and round out the features there, we're effectively doubling the addressable market for active traders.
Then when you layer on futures and cash-settled index options, if you take the index options, it is one of the fastest growing segments in options trading. We have been taking market share within the fastest growing segment in options trading. Adding that, I think hearing from customers, they are excited about that. Futures can be also a pretty big opportunity in that category as well. A lot of things to be excited about coming down the pipe.
You've also seen some really good momentum on the margin side. I know that's been a big area of priority for the firm and certainly for the management team. You made some pricing changes that drove an acceleration, but margin balances as a percentage of AUC is still only about 4% of Robinhood. What do you think that could get to when you benchmark versus peers? What do you see as an achievable target for that margin penetration?
Yeah, I mean, the way we think about it, so first of all, just as context, we for a long time just weren't competing for margin market share. Our rates were not competitive versus others. And I think that really showed up in the balances of the margin accounts. We made a change earlier this year, and we've seen pretty dramatic increase in the margin book. In terms of the potential that we see, I think your 4% estimate's about right. That's just getting started relative to market share. And that's how we kind of look at it. We look at market share for equities trading. We look at market share for options and so on. If you look at it for margin, not surprisingly because of our pricing previously, we just weren't competing and we weren't taking share.
I think there's a lot of ground to make up. I would look to the overall margin market as the potential opportunity and see what we've been able to achieve so far in other categories. I think there's a lot of headroom there in that part of our business.
The other two exciting areas that you have now dipped your toe in are futures and index options. You actually framed futures as a nine-figure opportunity for the firm and was hoping you could just speak to what are some of the assumptions that are underpinning that and if you can offer similar context around the index options opportunity as well.
Yeah, sure. So on futures, the way we've kind of thought about it, first of all, we hear from our active traders quite a bit that they are excited about adding futures. And we do have a pretty robust cohort of active traders and sophisticated traders who are interested in that product. So a lot of kind of intangible signals that this is going to be a product that's well received. In terms of framing it, we do think it's a nine-figure revenue opportunity. The way we frame that internally is we've just looked at the competitive set, and we've looked at what futures revenue is relative to the combined options and equities revenues of those competing firms. And we see a range of kind of 10%-20% of revenue for futures. And so kind of using that construct, we think this could be a pretty meaningful opportunity.
Cash-settled index options, again, it's a super fast-growing segment. We hear a lot from customers that they're excited about adding that. One thing that was really interesting that helped contextualize for me is I was in Miami for the Active Trader Conference a few weeks ago, and I had an opportunity to talk to some of our most active traders. I mean, that's how we invited people, that you have to be a really active trader to get an invitation. So I was talking to these active traders, and I was just hearing over and over again how a relatively small portion of their overall activity was on Robinhood, which was surprising because they're some of our best customers. When you start to peel back, well, why is that? Until now, you didn't have trading from the chart or more indicators.
And I think Legend is addressing that: selection, futures, cash-settled index options. So I think the resounding kind of voice of the customer was that they want to be able to take all of their trading activity and bring it to Robinhood, whether it's on Legend or on mobile. And it's just on us to continue to round out the product feature, fill in the gaps so that we can win more and more of their market share. And I think there's a big opportunity there.
And the other question that we've been fielding quite a bit, I mean, the good news is there's been quite a bit of interest in your stock, especially post the, I guess, the change in administration and around the crypto opportunity. When we look at what some of your peers have done, it does suggest that there is significant room for expansion in terms of launching new coins on the platform, staking, maybe even dipping your toe into lending. But to speak to how you see the crypto opportunity unfolding relative to what you guys are currently offering on the platform today.
Sure. I mean, historically, we've been really, really conservative, and appropriately so in terms of the coins that we've listed and the services that we offer. And for example, compared to Coinbase, we had a very small selection of coins available versus hundreds available at Coinbase. And in the U.S., we don't offer staking. We don't offer lending. I think the change in the regulatory environment is going to free up our ability to compete more on a level ground with Coinbase. And that's exciting. You saw us already this morning. I'm not sure if you saw. We listed four additional coins, three of which were in the top 10 for market cap. And customers are responding nicely to that. So I think it's a strong signal that we intend to continue to invest in crypto, to innovate here.
One of the things that's really exciting is the acquisition of Bitstamp, which we expect to close in the first half of next year. That is an international crypto exchange. It also has a presence in the U.S. I think that the changing environment in the U.S. opens up more potential use cases for Bitstamp domestically for us. And so I think there's a big opportunity to do things like add more coins, add things like staking, lending, longer-term things like tokenization of financial assets. So there's a lot to do in this space. I do think if you look back 20 years from now, we'll still realize how early this is for a crypto opportunity. And Robinhood is definitely in the space to innovate and compete.
And since it is a wealth conference, as we had mentioned earlier, it might be a good time just to speak to what your vision is for the wealth product that you're hoping to launch on the platform. I know it's supposed to have like a heavy AI and tech component. But just given your track record of disruption, undercutting competitors on price, what's your vision for the product? How do you plan on pricing the product? And how do you avoid some of the pitfalls that maybe the robo-advisors and others have had that have tried to push something similar?
I think if you think about Robinhood, a lot of people would say, well, when I think of Robinhood, I think of simple and intuitive user interface. I think of low price. It should be great economics. What I think is evolving, and you're going to see from us more and more, is that if you want to be at the forefront of technology and innovation, you're at a disadvantage if you're not bringing your business to Robinhood. That's really the vision, and so if I apply that to the advisory space, the vision is that we want to be able to deliver the kind of experience that a high-net-worth individual would receive with really curated advice from experts surrounding them. That's a big ambition. It's going to be hard.
I think technology is evolving so quickly, as we were all seeing, including with AI, that that is something that could be achieved. And the team's hard at work to contextualize that and to come up with a plan. There's certainly a lot of heavy lifting that needs to get done between here and achieving that kind of realization. I also think that we have 24,000,000 + funded customer accounts. Customers are different one to another, and there may be different ways to serve customers. So you might see instances where it's solely powered by technology and other instances where there's a blend of human and tech, and possibly even going down like an RIA-type play where you have a full-time human that's working with you. I think there's room for a variety of different ways to go after this opportunity. But advisory is a bigger market than self-directed.
It's something that we haven't even scratched the surface on yet. Teams are working on it. Can't share a timeline yet, but we do have folks working on it.
Wow. I mean, certainly the folks here can appreciate that and the size of the TAM, at least on the wealth side, so it's encouraging to see you guys are going after that opportunity. Another exciting opportunity is international, and as we think about some of the firms that have had tremendous success, like Interactive expanding abroad, what is your vision for what Robinhood accomplishes in terms of footprint and just penetration rates across different geographies? And I was hoping just for some additional context around how the strategy evolves around crypto versus maybe some of the other products and asset classes.
Yeah. I mean, when we think about our kind of top strategies and priorities at the company, we want to be number one in active traders. We want to gain market share, and we want to go international. And each of those has slightly different timelines. I'd say the international is a longer-term vision, and we're making good progress there. We have a brokerage in the U.K. We offer crypto in Europe. We have Bitstamp acquisition that is set to close, hopefully, in the first part of next year. That'll be a global crypto exchange. It'll open up deeper penetration internationally, certainly more coins. It's an exciting opportunity for us. Institutional is a big expansion of the potential TAM international as well and domestically. And so really, really exciting there. I think in terms of the vision, we want to be a global company.
We want to be in as many countries as possible. There's, I think, a lot of synergy. As you kind of roll out in one country, you're able to build some of the bespoke technology that's necessary for things like payment rails or multicurrency, and you're able to make that extensible so that you can move even faster for the next incremental country, so don't have anything to share yet in terms of which next countries, but we do intend to be in more countries over time, and in terms of the product strategy, it may be different. You're already seeing that in the way we've started in the U.K. with brokerage. We've started in Europe with crypto. Each geography may be a little bit different.
But I think in the fullness of time, we'll want to offer as many of our products as we can in each geography, depending on the appetite by customers and the environment by regulators.
Admittedly, there's been a fair amount of volatility in terms of activity rates in your public history and even prior to that. One of the questions that we get quite often, Jason, is really around what's the new normal for activity levels? And part of the challenge, admittedly, although it's a high-class problem, is that you're attracting more and more active traders to the platform. Now, how should investors think about what is a new normal for activity rates? And do you expect it to trend higher given that increasing percentage of active traders that are joining?
I mean, I think it'll ebb and flow based on the products that we launch. I mean, I mentioned earlier the three strategies. We want to be number one in active trader, and we're rolling out things like the desktop application, Legend. We're rolling out futures, index options. These event contracts, if we continue to make progress there, can bring in more of the active traders. Alternatively, when we talk about advisory, that is a different kind of investor, and so I think over time, in the short-term, we're seeing a lot of progress on active traders. I think that's durable and can last, and I think over time, as we continue to evolve the business, we'll just continue to diversify. And I think that's great for investors. It's certainly great for customers to have diversity of the ways that we serve them.
It also diversifies the revenue streams that we generate as a company.
I guess one of the benefits of delivering that level of sustained growth is that you also have very high incremental margins on the business. So a 90% fixed expense base, you guys have consistently delivered a 75%+ incremental margin on every additional dollar of revenue that's come through the door. Now, as you think about where you are today in terms of gap, EBITDA margins at 30%+ , given the highly scalable model that you've built, is there anything structural that would preclude you from closing that gap with a Schwab or an Interactive that are running with much higher margins today?
Yeah. I wouldn't say that there's anything structural limiting our ability to increase our margins. There's a few things that I would point out. You pointed out the cost structure, 90% fixed. I think as important as that is the DNA that we have at the company, which I'm really proud of because we're still a relatively young company. But we have an incredible amount of discipline in the way that we allocate our capital. And the way we thought about it in 2024 would be probably instructive to how we just think about it generally. But for established businesses, a company can just fall into a mindset that, oh, well, we're growing, so we can afford to just let the costs creep up too. And we don't adopt that. We know that technology and process efficiency leads to savings.
And so for existing businesses, we asked across the board for our teams to be low single-digit growth to flat and in some instances down. And that kind of approach has led to a discipline and a cultural emphasis at the company that everyone's paying attention to dollars. And so when it gets down to kind of the brass tacks of conversations of asking for more headcount, everybody is conditioned to know that they need to be working with their finance partners to figure out how to be able to afford the incremental head. Like, where can I find savings elsewhere in order to pay for that headcount? And when you have that kind of discipline in the company, it really makes the 90% fixed cost even more powerful because fixed costs can go up too. They just don't move directly in correlation with the activity on the platform.
And so you have to be really eyes on the ball with fixed costs to make sure that those stay in control. And what that does when you're disciplined on the big established businesses is it leaves money to invest for growth. And so in 2024, we added $100 million to our marketing budget. We love the LTV to CAC on that spend. And then we've been talking about a lot of the new things that we're investing in for growth that's going to pay back over long periods of time. And so the combination of all that has me really excited that we've got a runway to continue to expand margins and drive revenue higher.
And you also have been fairly active on the M&A front, although not transformational deals per se, but like small tuck-ins just to bolster the product offering. So X1 and credit card, Say Technologies on property. You mentioned Bitstamp. What are some of the other gaps on the platform where it might make more sense to buy versus build?
Yeah. I mean, the way we think about it, first of all, we have a really strong corp dev team that's paying close attention to the opportunities and the markets that we're in, as well as the markets that we're not in yet. And we like talented teams, talented tech teams, great technology, and the ability to accelerate our roadmap. And when we think about all the different opportunities that are in front of us, certainly our natural disposition is to build because we've gathered a team of builders. But we also recognize that there'll be moments where it makes just more sense to acquire so we can just move faster. And so really across the board, whether it's asset gathering or whether it's entering new markets, adding new capabilities, all of those are in play.
The real challenge for us is management bandwidth and where we want to prioritize. So oftentimes, we'll choose to buy things that we just can't get to organically fast enough.
Maybe before asking what was probably an inevitable question around the earnings growth algorithm, and I'm looking forward to the preview, at least ahead of Investor Day. But I did want to ask just on the gold ARPU and pricing, just given the benefits from the gold subscribers as being much more active. You guys have quoted in the past seven times or 7 X the ARPU relative to the rest of the customer base. You may not have imminent plans to change pricing. Maybe just talk about your philosophy around pricing for different products, especially as that value prop improves. How do you think that's ultimately going to evolve over time?
Yeah. I mean, it's interesting, a few ways to think about it. First of all, I talked about earlier that our vision is that if you're a Robinhood customer, of course, you should be a Gold customer. And so especially given the platform effects of joining Gold and leading to 7X ARPU, our priority right now is to get the attach rate as high as possible and less about optimizing the subscription revenue. We are in a run rate of about $110 million and growing of revenue on the subscription. But the downstream effects are so powerful that I think our attention on getting as broad of adoption as possible. Now, it's also in our DNA to experiment. And we've done some experimentation on pricing with Gold. We've also been doing it with crypto. You may have noticed that the take rate's been moving higher. Check your apps.
It's moved up a little bit more, as high as 55 basis points. We are very much willing to modify the economics. We also are kind of students of experimentation. We look at the data. We look at the effect on the product experience and the value proposition. It's something that we will look at for gold over time. Right now, the top priority is just increasing adoption rate.
Great. And maybe just a good closer again on the earnings growth algorithm, just like trying to put a lot of the pieces together, Jason, that you outlined. You're seeing significant growth in accounts. They're much more engaged. You have very high incremental margins and a large fixed cost base, more consistency with the buyback. I know we didn't touch on that here, but you've alluded to that publicly. What do you see as a sustainable earnings growth algorithm for the company as you think about all those different component pieces?
Yeah. I mean, just breaking it down kind of in a math formula construct, the numerator is driving profitable growth. So how do we get the highest possible bottom line earnings? And then how do you divide that by as low a share count as possible? And so we're doing all the things around investing for growth to drive the top line. We're seeing the benefits of the discipline and the cost structure to deliver that high incremental margin. And then we're doing the actions, I think, that are super important to maintain our share count and even possibly lower it over time in the way that we manage shares. And I think combined, it leads to kind of a North Star for us, which is we want to maximize free cash flow and earnings per share. And that's really the algorithm that we're following.
And in periods like now, we had a really strong October. November's off to an even faster start. In periods like this, that's when you see kind of the power of the leverage in the platform, that 90% fixed cost. You're able to drop more to the bottom line. So it's exciting to be at Robinhood. I think we've got a lot of opportunity in front of us. And I look forward to continuing to update you over time.
Absolutely. Well, great way to close it out. Jason, thanks so much for being here. Really appreciate it. And looking forward to investing.