Q2 2021 Robinhood Markets Inc Earnings Call
Yeah.
Thank you for standing by and welcome to Robinhood second quarter earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded should you require any further assistance. Please press star zero I would now like to hand, the conference over to your host head of Investor Relations and capital markets Urban Shah. Please go ahead.
Thanks, a lot and welcome everyone and thank you for joining us for Robin Hood second quarter 2021 earnings conference call with US today, our CEO and co founder of lab tenants and CFO Jason awareness.
Before getting started I want to remind you that today's presentation will contain forward looking statements about Robin hood expectations for the third quarter as well as our strategic and operational plans.
Actual results might differ materially from our expectations potential risk factors that could cause differences are described in the Form 10-Q, we just filed with the SEC.
All information on the call is as of today August 18th 2021, and we undertake no duty to update it for subsequent events. Today's discussion will also include non-GAAP financial measures reconciliations to the GAAP results. We consider most comparable can be found in the earnings presentation on our Investor Relations website at investors Dot Robinhood.
Dot com with that let me turn it over to Vlad <unk>. Thank.
Thank you <unk> and thank you to all of our listeners for joining Robin hoods first earnings call.
Before sharing some of the highlights from Q2 I want to briefly introduce the company for those of you who are new to our story.
We founded robinhood on the belief that everyone should be welcome to participate in our financial system. The U S financial markets are one of the greatest sources of wealth creation in the World. However, access has been unevenly distributed with institutions and high net worth individuals enjoying better access and tools than others.
We built robinhood to fix that through a mobile first product that removes the economic educational and emotional barriers that have kept so many millions from participating.
But our mission is bigger than investing we want to become the most trusted and most culturally relevant money app worldwide.
We believe we're already on the path and have many of the foundational elements in place, including a track record of attracting new customers to our platform clear leadership in mobile strong customer engagement and a vertically integrated platform.
For our quarterly updates, we're going to frame our progress through the lens of our four values. These values arent just posters that we hang up on the wall in the office, we actually use them to allocate resources and to run our business. So in priority order. Our first value is safety first we've been allocating the majority of our <unk>.
Sources here. So let me go through some of the progress we've made on safety first.
Number one stability and scale have been the highest priority for our engineering team for well over a year. We've continued to double down here, we've added engineering talent and filled important senior leadership roles and we're methodically working to eliminate single points of failure upgrade our systems and enhance the redundancy and resiliency of our <unk>.
Services I'm, especially pleased by the progress we've made with our Cryptos services in Q2, making them more resilient to surges in trading volume.
Number two we're also investing heavily in customer support in the second quarter of this year, we expanded live phone support to additional high priority topics and we're now serving customers on issues related to options trading equities trading and account security, we're working towards being able to provide 24 seven phone support for substantially.
All of our customer contacts by the end of the year. We're also eliminating reasons customers contact us and are applying technology to increase the quality and speed of our customer service responses and we've hired and trained hundreds of license representatives doubling the size of our customer support team since the beginning of the year.
We arent done, though we want the quality of customer service at Robinhood to be a reason customers stay with us over the long run.
And number three we remain focused on building educational content that helps first time investors become long term investors. This quarter, we started to rollout our first set of educational modules in the App, which allow customers to take quick interactive courses on the basics of investing we're continuing to build this out and look forward to it.
Introducing more advanced interactive learning tools in the coming months.
So thats safety first start top value, let me talk a little bit about our second value participation is power.
So this is our oldest value as a company and it's focused on expanding access for customers worldwide and robinhood, everyone is treated equally regardless of their income or wealth and as we continue to build new products Youll consistently see that at robinhood wealthier customers don't get a better deal.
Great example of this is our new IPO access product, which lets our customers invest in companies at their IPO price before trading on public exchanges, just as institutional and high net worth investors have been able to do for decades, we view this as another meaningful step towards increasing access to financial markets for everyday.
Investors six companies, excluding our own have offered IPO shares to customers through IPO access so far we've seen meaningful customer engagement on these deals with our share of the allocations oversubscribed by greater than five X on all six deals were pleased to see that about 80 to 80.
5% of the a lot of shares to our customers. We're still held 30 days following the IPO for the two deals that price in Q2, we are optimistic that more and more new issuers will view robinhood as a way to better align themselves with their retail shareholders were also encouraged to see the response from customers to our cash management product, which grew to over.
5 million customers at the end of Q2.
So thats participation as power now for our third value radical customer focus so.
So we exist to make our customers happy we listened to customers, we innovate on their behalf to deliver more products and features that deepen our relationship with them.
Our customers are showing a lot of interest in crypto. In fact this is the first quarter, where we saw a larger share of new customers place their first trade in crypto rather than in equities and our customers are asking for more from US we're investing heavily in our team. We're working on rolling out new crypto features such as more points recurring.
Investments the ability to positive withdraw your crypto, we're excited about the future of our crypto product.
And now a bit on our final value first principles thinking so our foundation as an art math and physics, we have a deep appreciation for breaking down complex problems and finding new ways to solve them. While we do play close attention to what others have been doing we strive to make bold bets that challenge the status quo.
Regardless of how difficult the challenges, we believe that overtime, our first principles thinking will be a bigger and bigger differentiator for us.
Now before I hand, it off to Jason.
To take this moment to welcome the team at <unk> technologies, we are thrilled to have <unk> join our team and excited by the possibilities of connecting robinhood customers more deeply with the companies they invest in with phase Q&A technology retail customers can engage with company management ask questions and.
Have their voices heard.
And with <unk> focus on proxy services, we think there's a really interesting opportunity for us to make it simple for retail investors to exercise their right to vote truly empowering them like never before.
With that let me turn it over to Jason to discuss our second quarter financial results.
Thanks, Brad I'll first talk about our Q2 performance and then provide some commentary on Q3.
We had a strong growth in Q2 across our primary kpis driven by customer interest in crypto.
In Q2, net cumulative funded accounts reached $22.5 million up 130% year over year.
Active users reached $21.3 million growing 109% year over year.
And assets under custody reached $102 billion.
205% year over year increases.
Increases in E&C since Q1, we're seeing across all three primary asset classes with crypto, leading the way up 11 billion, followed by equities up seven 5 billion and options up $300 million the.
The growth was driven by $10 billion of customer net deposits during the quarter as well as increases in the market value of underlying customer assets.
Now, let's turn to revenue.
We achieved record total net revenues of $565 million in Q2 up 131% year over year.
Transaction based revenues were $451 million in Q2 up 141% year over year, driven by the growth in our user base and strong interest in crypto during the quarter. In Q2, we saw the number of active crypto traders increased significantly versus the previous quarter at the same time, we saw a decline in equity.
Activity as our customers interest rotated from equities to crypto.
Crypto revenues increased to $233 million in Q2 up from just $5 million last year Robinhood is now clearly on the map for crypto trading.
Options increased to $165 million up 48% year over year, and equities were $52 million down 26% year over year.
For an overview of trading activity in Q2 equity starts were relatively flat year over year, 59% of funded accounts traded equities, which was down from 66% in the same quarter last year.
Darts for options were up 28% year over year, five 6% of funded accounts traded options, which was down from eight 2% in the same quarter last year.
And darts for crypto set a record at 63% of funded accounts trading crypto up from 11% in the same quarter last year, notably 62% of crypto trading volume was in dose coin in Q2, which compares to 34% in Q1.
Now over time as our various products achieve maturity you should see continued diversification and less reliance on any one revenue stream such as payment for order flow. We are already seeing promising signs of this in Q2 with payment for order flow for equities and options as a percentage of our revenue declining to 38% from six.
84% in the prior quarter as customer interest in crypto increased.
We expect to makeup of revenue to continue to fluctuate and payment for order flow in the near term may again increase but over the long run the trend should be continued diversification as we add additional products.
Now turning to net interest revenues, they grew 69% year over year to $68 million securities lending totaled $39 million up 38% year over year as we increased our securities lending balance, but experienced some softness in the average market rates we earn.
Margin interest totaled $31 million in the quarter up 185% year over year as customers took advantage of our two 5% Y on amounts borrowed over $1000 or margin book reached $5.4 billion at the end of the quarter, an increase of 303% year over year.
Interest expense, which is related to our credit facilities at as an offset to net interest revenues was $5.3 million in Q2, we significantly increased our ability to borrow for working capital and today have $2.8 billion in available funds through committed lines of credit.
And other revenues increased 177% year over year to $46 million driven by an increase in subscription revenue from robinhood gold and proxy related revenues.
Moving now to operating expenses I have a few callouts.
Brokerage and transaction expenses were $38 million up 32% year over year, representing 7% of total net revenues. We saw some leverage in this line year over year, particularly from a reduction in the rate for charged for certain clearing and regulatory related fees.
Technology and development expenses were up 248% year over year to $156 million or 28% of total net revenues.
Following high trading activity on our platform earlier this year and ahead of our IPO, we decided to procure additional cloud resources to help ensure sites stability, particularly through June and July.
Additionally, as we continue to invest in our development capabilities, we've been aggressively hiring technology related head count.
But over time, we expect to see this line item decrease as a percentage of revenue.
And for operations expenses, they were up 232% year over year to $101 million or 18% of total net revenues were increasing significantly investing significantly in our customer support function, including rolling out LIFO and support and by increasing the number of dedicated customer.
Support professionals.
We're also incurring losses from debit card charge Fox and reversed deposit transactions. These costs totaled $40 million. During Q2 were focused on this and as you know it's an industry wide issue, we're using both technology and customer service to address this and we're looking forward to making some progress here.
Stock based compensation is included in each of our operating expense line items as a reminder, prior to our IPO, we did not record any stock based compensation on restricted stock units in Q3, we'll record a onetime cumulative charge of $1 billion in stock based compensation for our use and begin recognizing <unk>.
<unk> stock comp going forward.
Now for measures of profitability net loss for Q2 was $502 million compared to net income of $58 million in the prior year.
Included in Q2 was a $528 million charge related to the change in fair value of our convertible notes and related warrants liability.
We will record a final charge of approximately $25 million for these notes and warrants in Q3.
Adjusted EBITDA was $90 million in the quarter up from $63 million in the prior year.
Now, let's turn to Q3.
As a reminder, our business is subject to seasonality, which generally shows strong growth numbers in Q1 and into Q2 and less so in the back half of the year.
We've experienced volatility from period to period that makes it difficult to accurately predict results in the short term and so we will not be providing forward looking guidance for key operating or financial measures that said, we'll provide some commentary on what we're seeing in the first several weeks of the quarter Thats underway and.
And for Q3, we expect seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts than we saw in Q2.
We're focused on the long term and we're very excited about our product roadmap.
We are introducing the next generation to investing and all things money and we believe there's a big opportunity ahead of us with that let's turn it over to questions.
So last week.
Last week, we announced that we'll be using say technologies to enable all robinhood shareholders to submit questions for our management team as of yesterday. We had received over 3500 questions from our shareholders. We will start today's Q&A by answering the top questions by number of votes, although it will pass over any questions that are already being addressed.
After that I will turn to last questions from the analyst community.
First we will hood pay out a dividend in the future.
I'll take that thanks for the question.
At this point, we think the best use of our capital is deployed in the business. We're very much in the growth stage and so for now we have no plans to issue any dividends.
Great number two is robin Hood, getting a crypto wallet.
I'll be happy to field that question and I know that there's been a ton of enthusiasm from the crypto community and the dogecoin community in particular on getting access to wallets and it's something that our teams are working on so let me tell you a little bit about.
Sort of why this is difficult and challenging.
So.
This year clearly robinhood has had.
Explosive growth in crypto during Q1 and Q2.
And we've had to grow out the team we made a lot of progress growing out the team and really hiring great talent onto crypto and scaling our systems to make sure that we can handle the increased load.
And we're very proud of the work that the team's done.
Of course.
Offering crypto wallets and the ability to deposit and withdraw crypto currencies is.
Tricky to do with scale, we want to make sure its done correctly and properly and we want to make sure that everything from a security and operations standpoint is as bulletproof as possible.
Our top value is safety first and we hold ourselves to a very high standard for that so.
As with all of these things will want to make sure. It's right, but we have made a lot of progress in the crypto team and the platform and we're excited too.
To roll this out for our customers and we definitely hear you and it's a.
A key priority for our teams at robinhood as well.
Bob.
Number three what are Robin hoods plans for Iras, 401, K and HSA accounts or any or all of them a possibility for the future and if yes, how soon.
I'd say the top level.
We want robinhood to be the most trusted most culturally relevant money app worldwide.
For the investing business. The goal is really to take our first time investors and turn them into long term investors onto the platform you've seen that with some of our recent product launches like recurring investments in trip, which are built on top of our fractional shares infrastructure. So we're continuing to.
First in the technology of the tools and the educational content to empower our first time investors and make them long term investors. We're also looking at multiple account types.
Giving people access to tax advantaged accounts, like Iras, and Roth Iras as well as things like <unk>.
<unk> accounts and beneficiaries.
And we see all of that in in the future.
I think what you'll find from US is we're not going to use earnings as the mechanism to announce new products, we don't intend to do that at least for the foreseeable future.
But youre going to see continued product development in this area. We've been really proud of the work that we've done scaling our product and engineering and operations teams. So multiple account types are certainly on our radar.
Great number four are there any plans to launch robinhood in other countries. If yes, what is the timeline.
So we've said from the very beginning that we want robinhood to be a global company and we actually think that.
We have a lot of advantages in going global I think the value proposition of offering.
The best customer experience and low cost to our customers resonate, perhaps even more strongly overseas than than in the U S where people by and large have access to.
Reasonable quality financial tools. So we think there is a great global opportunity for us and it's very mission aligned for us as well so in the past.
18 months or so as we've dealt with.
Global pandemic and the streams on our business from having to scale our business dramatically we have been focused more on the domestic business.
The U S opportunity over over the global opportunity that said.
Due to improvements in our infrastructure, our staffing and our ability to.
To handle the scale that we've seen we feel well positioned to turn some of our attention to international So we do anticipate that.
We will be able to focus a little bit more no specific dates and timeline at this point, but we do find a lot of excitement and the opportunity.
Next question is initial investors can we get a robin who had had annuity jacket.
I'll take this one vlad.
So love the enthusiasm for the brand I know Robin Hood employees I get really excited about swag.
We'd love to find a way to get that.
In the hands of our customers. So I can't make a commitment right now, but I will say that we'll go look at this I think it's a great idea to get.
Our branded merchandise in the hands of our of our community.
Yes.
How do you assure.
<unk> price is not manipulated on robinhood.
I'll take this one as well like all brokerages.
We monitor the trading activity on our platform.
And when we see any potentially manipulative activity on any stock we take action primarily that includes sharing that information with regulators. So that they can take it from there. So that's our commitment and we've got a strong team looking at this.
What's the extra robinhood, if piece off or payment for order flow is regulated what can you do.
So what I would tell you is that payment for order flow is regulated already.
It's been primarily focused on on.
On disclosures and we do provide all the required disclosures and we do our best to explain how we make money and what payment for order flow is it's often misunderstood.
A component of our business and so appreciate the question what I would tell you is that over the long term our intention is to be the single money app.
That implies more products more features and innovation is lab was talking about not just on the existing products that we have but certainly on new products, we want to be the single place that our customers go to for all things money.
And that will lead to naturally to diversification in our revenue streams over time.
Next what are your plans to maximize shareholder value over the next year.
So I would tell you that.
We tend as a management team to really focus on the long term.
And as I, just mentioned, we want to be the single money App and so that really is about rolling out new products and new features that said in the short term we have a number of things that are on our roadmaps that we're going to deliver we take a lot of cues from our customers and as I had mentioned earlier.
They are asking for more functionality more coins in the crypto space I think there's opportunities to rollout products that will increase returns for customers as well as us through fully paid securities lending.
And we're pretty excited about our cash management product, we announced that our.
Cash management now has over 5 million customers and we think Thats really interesting place for us to offer more value get higher adoption and also generate more returns for shareholders. So.
A lot of opportunity in front of us.
Great.
Are we getting a feature where we can post comments and discuss more about the stock in the near future.
I'll take this one I would say that.
Through our through our acquisition of say we.
We're excited to give retail customers.
<unk> two <unk>.
Interact closer with companies through this format as a great example, and we're interested in further exploring that I think that there's a lot of possibilities to connect robinhood customers more deeply with with.
With companies that their shareholders.
And with each other and of course, we want to be careful and make sure that we do that safely for everyone.
<unk>.
But we do see opportunity there and that's why we're very excited about about joining forces with safe.
Skipping over this one been answered is there a plan to allow users to get stocks to one another.
Yeah, I'll take that one as well so we really appreciate the enthusiasm for this I think that.
In general we will be looking at how to make our referrals programming system even better.
A lot of our customers do find out about our product through other customers that are already using us.
And so you should expect continued product innovation there.
And this is gifting stocks is certainly something that we've thought about and.
And would continue to explore.
I think we have time for just a few more patients and then we'll get to the analysts. So IPO access has been an exciting new feature and further differentiates robinhood from other investing platforms does the company see IPO access is a substantial driver of revenue growth in the next few years, how many IPO can users expect on Robin Hood for the rest of calendar year.
<unk> 2021.
Yes, I think the way we thought about it is.
It's very much in line with our mission access to Ipos at the IPO price has been something that when offered to retail investors typically has been reserved for high net worth individuals in the past.
So we're really excited too.
To see see that product go live and get such a good reception from customers and I think one of the other things that were happy about as Jason mentioned is that customers that have been participating in these ipos have been relatively diamond handed so to speak so they've been whole.
Adding onto to these stocks for over 30 days and haven't been haven't been flipping them. So I think that addresses a misconception that a lot of folks have had about retail and ipos.
In general.
The way, we think about it with any future we're optimizing for happy customers, we wanted to deliver value to them we didn't really.
Rollout IPO access with an eye to generate revenue growth in the immediate term, but we do expect it to be a growing business and we do expect to.
To deliver more ipos that customers can have access to you as it becomes clearer to companies and issuers that this is a valuable constituency and valuable to them as well. Okay. Maybe one last one what are the future steps taken to make robinhood, a better app to compete in the market with other apps like Weeble fidelity et cetera.
Yes, absolutely it product development has been something that robinhood has been prioritizing. So over time you have seen over the past few years, we've continued to listen to customers. We've continued to take advantage of our unique user research and design teams.
I understand what customers want and what they what they could use and you should see that continue and hopefully accelerate overtime. So we will look to continue delivering great value, improving our existing products and services and expanding our existing businesses to really become.
The most trusted and most culturally relevant money app worldwide and that's the goal.
Great.
Thanks for that guys and with that I will ask the operator to open up the line and remind the analysts on how to enter into the queue.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Ross Sandler of Barclays. Your question. Please.
Hey, guys going back to the single money comment.
As we look outside of investment in brokerage.
What do you see in terms of.
Our product roadmap and logical areas for Robin Hood to explore and if we look to the east to something like <unk>, which is the gold standard for the single money concept. It took them about four years to get the majority of their users to adopt new services outside of the.
Our core Holly.
Payment product so how do you feel about attach rate as you go outside of.
Brokerage thanks a lot.
Yes. Thanks for the question I think Thats, an important one I'll share my thoughts so as we think about offering new services to customers.
Generally the way, we prioritize as we want to optimize for product market fit. So we don't rely too much on sort of the innate ability to cross sell within our platform, we task our product teams with.
Making sure that products independently achieve product market fit and then aside from that we look for daily habits, So things that customers use and engage with on a daily basis, because we think that.
If if we if customers trust us with their daily habits than over time.
They'll trust us with their sort of lower frequency higher value transactions as well. So that's why we've started with investing in expanded beyond equities into.
<unk> and then with our crypto currency business and that's also why we're interested in.
In spending and paycheck direct deposit.
So one of the things that we've talked a little bit about is that our cash management product, which is our debit card in high yield savings grew to over 5 million customers at the end of Q2.
We're really encouraged by that adoption.
And we're very very excited to double down on that keep investing more keep delivering more value to customers using those products and we see an opportunity to.
B B a substantial player in that space, I mean $5 million cash management subscribers.
In just a couple of years.
Since launch I think is something to be proud of and with crypto currency took a couple of years before that really started showing.
Massive.
Sort of impact on our business and we have that long term perspective with future product lines anything we're encouraged by what we see but we also recognize it's a long term business and we want to keep adding functionality and keep making our customers happy by by improving the products and services over time.
Thanks Ross.
Thank you. Our next question comes from Steven <unk> of Wolfe Research. Please go ahead.
Hi, good evening.
So I appreciate some of the earlier comments on payment for order flow Jason.
There are a number of different scenarios for piece off.
Our regulators do ultimately institute, an outright ban with internalization of order flow of viable alternatives and under such a scenario how much of the revenue could you offset from internalization and as the path to buy versus building a market maker, which one makes the most sense in your mind.
Yes, thanks for the thanks for the question.
What I would tell you in terms of like our capability Robinhood has a history of doing challenging projects.
Going self clearing for an example was certainly a heavy lift and something that the team successfully did it helped us vertical is our platform I think it positions us well to grow incredibly fast over time and really control our own destiny more than if we just partnered with a third party. So.
So I think we have the capability to do it.
And certainly others in the industry do internalized or even market make as a way to monetize the flow. So I think it is a viable.
Option for us.
In terms of the <unk>.
Economics.
I even go there I would tell you that our view internally.
Is that we don't expect payment for order flow to the band that's just not what we think.
We expect it to.
Be in active dialogue I think that the regulators are asking for.
Ah study to be done.
What I would tell you is that.
With a little bit of context before Robin Hood.
Small investors, we're paying commissions on top of payment for order flow.
And it kept a lot of people out and so never before has investing in this country even cheaper.
And I think you can see by the $22.5 million customers that we have that breaking down that barrier of commissions has been just good and so we'll be definitely.
Defending.
Our customers and making sure that we don't put up barriers that have been taken down and kept people out.
In terms of internalization I, probably don't want to go too far in term in terms of the economics, we have looked at it we do think because of payment for order flow is such a small.
Revenue stream, it's about two to $2 five per $100 traded that its not a terribly difficult revenue stream for us to replace.
Thanks for your question, Oh, sorry buy versus build I think.
I don't want to go too far down on that but I would tell you that we've got confidence enough to build it but by and certainly as an option for us and we would look at both in that scenario.
Great.
For my follow up I was hoping to just ask on the topic of graduation risks you are certainly well positioned to capture the growing wealth of the millennial cohort and the <unk> data that you guys have provided guidance.
Just that the average account, that's leaving us about four times larger than the typical robinhood account I was hoping you could maybe unpack the strategy to address graduation risk as your clients accumulate more wealth, where does the biggest pain points and you feel you really need to address to try to mitigate some of those pressures.
Yes, I can.
Sure some thoughts there thank you.
I'd say at a high level, we're actually really happy with the retention and engagement on our platform. We think we compare very favorably there.
Looking at the <unk> channel in particular.
One thing that a lot of people don't realize is that we only have eight cats out live to customers right now so a lot a lot of customers actually are expressing an interest in consolidating their accounts.
Into robinhood through <unk> and that is something we're listening to and were very very keen to provide.
Through our self clearing conversion, which we did back in 2018, we had to temporarily turn off.
Cats in functionality, so a lot of brokers will say oh.
We never lose in a cat to Robin Hood part of the reason is because we we don't actually support a cats in right now. So acas is typically a channel where you will see higher <unk>.
Asset assets, then then ECH.
So I think the the sort of observation is more channel specific than customer specific I mean, you do typically see larger account sizes with a cats and.
We do anticipate that this will change when we allow a cats in to the platform in terms of the part of your question about Gratulation risk what I, what I would tell you is that we fully intend to grow with our customers you see that in our product roadmap as.
As we talked about wanting.
New investors become long term investor because that's really going to inspire the products that we are allowed an account features that we rollout.
So that you don't see that.
And then what I would tell you. This when we look at churn, we're not seeing any kind of customer demographic concentrations that would occur.
That's great. Thank you so much for taking my questions you bet.
Thank you. Our next question comes from Josh Beck Keybanc. Your question. Please.
Thank you team for taking the question I wanted to ask a little bit about the new cohort that you brought in.
<unk>, Jason I think you had.
Commented a bit in glad as well about the propensity to invest in crypto. So certainly that was notable are there any other maybe.
Maybe compare contrast that you would do with prior new cohorts that you felt was notable.
Yes.
I would say is in Q2.
A large cohort came in about $4.5 million net funded accounts in the quarter, which was.
Near a record Q1 was slightly higher so.
This was the first time that we've seen more first trades in crypto.
Versus equities.
And we love the momentum of our crypto currency business.
With over 60% of our customers overall trading income during the period.
What I would tell you on cohorts, it's a bit early to to.
Look at the newer cohorts and project out, but when we look at cohorts.
Over time, I think you've heard us say that they tend to start small.
They're highly engaged they grow with us both in terms of the revenue that they generate for us as well as the net deposits that they put on the platform.
So far there is nothing to suggest that that will continue.
Sure.
Very helpful. And then maybe just a follow up.
What.
As the.
Channel composition of referral and marketing spend look like.
Q2, and how are you thinking about that for the rest of the year.
Yes so.
You know kind of historically, we've seen the majority of our customers coming to us either organically or through our customer referral channel we saw similar.
Similar rates by channel in Q2.
Looking forward, we expect to continue to have.
Our robust customer referral platform, we are investing in more broad scale brand advertising to get our message out to customers and so you should expect to see us to continue to.
Invest in those kinds of messaging, but structurally we have been very efficient in the way that we acquire our customers and we expect to be diligent going forward as well.
Thanks, so much.
Yes. Thank you.
Thank you. Our next question comes from Sean, Oregon Rosenblatt. Your line is open.
Hey, Thanks for taking my question.
First one is on cash management.
I wanted to get a sense for your monetization strategy longer term.
And more specifically do you have any aspirations to offer things like interest, earning crypto accounts or crypto.
Crypto rewards.
<unk> users and drive inflows on your platform.
Yes, I can I can feel the second one.
So certainly we see a lot of enthusiasm from our crypto community I think the nearer term kind of foundational feature that we will be looking to rollout will be wallets or deposit and withdrawal functionality.
Also heard a lot of.
A lot of excitement and enthusiasm for increasing the listings that we have on our platform so adding more coins not something we're looking to.
And.
Crypto interest and rewards are something that we're hearing as well. So crypto started off 2021 is a very small team.
The team has been growing its really become.
A great center of excellence for engineering and product within the company. We're proud of the work there and we're excited to.
To build for customers.
I think there was a question as well that you asked about cash management monetization maybe.
Jason Yes.
Tell you.
Sean is that.
Our intention is to pass a ton of value back to customers.
Who are participating with our debit card and cash management product, we're excited about rewards and incentives.
And.
Today, we pass along the majority of the interest that we earn to customers certainly at the low interest rate environment becomes interesting I think over time as the.
The interest rate environment environment will fluctuate, but we want we want our customers to look to Robin Hood debit card as their primary form of payment and we think that that's a really interesting monetization opportunity for us over time.
Great. That's really helpful guys. Thanks, and then just.
Another follow up I guess on crypto, it's obviously.
Very rapidly and so on.
I wanted to get a sense for.
Market share trends and the competitive landscape.
Flat I think you mentioned.
Listings as being an area of interest for customers. So.
Whether it's speed.
The listing new new in demand assets or pricing.
Just wanted to get a sense for what makes it user she is robinhood over.
A different platform.
Yes, I think that this year in particular.
I think customers have really started to appreciate the two key value propositions behind crypto, which are.
The fact that it's a low cost offering we're very proud of the pricing and the cost that we offer to customers and especially relative to our competitors. You know some some companies are charging multiple percent transaction fees and commissions and Robinhood has been commission free.
We're proud of the deal that we offer and customers choose us for that and also the fact that it's successful that.
Everything is in one place with securities with cash management, and with crypto and that.
It's easy to understand and it meets customers, where they are I think has continued to be unattractive aspect of our offering and I think that's something we'll be looking to continue as we build out more functionality add new coins.
Give people the ability to move their coins onto and off the platform.
Great. Thanks for taking my questions.
Yes.
I think we have to think about two more questions.
Excellent. Our next question comes from Jason Bazinet of Citi. Your line is open.
Thanks, I just had a question about your your accounts.
If you took your current account base of $22 million and stay at a certain percentage of never.
Brokerage account anywhere else.
Based on whatever that number is how deeply penetrated you think you are in that segment of the market before you sort of run out it goes off to start stealing accounts from.
Some of the pension income.
Competitive.
Yes, thanks, Jason.
I think what you're referring to is that our customers tell us when.
When they join about 50% of the time, they tell us that they are new to investing that this is their first brokerage account I think thats really speaking kind of directly to our mission.
To provide access.
The financial system.
And we're really really proud of that.
By definition, the other half have brokerage accounts elsewhere, and so I really think.
This speaks to an opportunity for us to continue to.
Reach out to people, who don't have investing accounts. We think there is no reason why anyone shouldnt be an investor investing is literally for everybody.
And so that.
The way, we think about it.
Globally anyone with a checking account and possibly with crypto, where you don't even need a checking account.
As part of the addressable market for US and then as we continue to rollout products and features to grow with our customers I think more and more you're going to see Robin Hood, particularly with our mobile first platform and ease of use.
<unk> become incredibly attractive to folks that havent previously considered robinhood as the go to place. So we're pretty optimistic about the opportunity ahead of us and Thats limiting the response to two investing I think theres a lot more that we can do.
When we talk about being a single money app for our customers globally.
Yes, I would also say that according to some recent research about 60% of Americans don't have investments outside of retirement and a greater percentage of 18 to 29 year olds, 68% have no money invest it altogether. So.
EBIT, even though we've made progress I think there's a lot to do to encourage greater participation in the markets.
Thank you.
Thank you. Our next question comes from Steven Chu Bank of Wolfe Research. Your line is open.
Hi, Thank you so much for accommodating the follow up I just had one question on some of the <unk> outlook commentary you mentioned in the prepared remarks activity level isn't head count growth or moderating I know you attributed that to seasonality some of your peers in the volume data that we're tracking suggests that particularly amongst.
Some of the Cryptos coined by those clients, we're seeing a more pronounced decline and I was hoping you could just conjecture contextualize just in terms of orders of magnitude.
How pronounced slowdown youre seeing in <unk>.
To help frame just overall activity levels youre seeing within robinhood ecosystem.
Yes. Thanks for thanks for your question, what I would tell you highlighted seasonality.
For brokerages traditionally.
The first quarter and into the second quarter tends to be the highest.
Activity quarters in terms of trading as well as new accounts with the back half of the year being less so Robin Hood is becoming a bigger portion of the overall market and so seasonality is something that we pay attention to the other thing that we benefit from over time.
Volatility and and Theres been several moments of pretty notable volatility in the markets not just in equities, which was mostly in Q1, but also with crypto, which is in Q2 makes it incredibly difficult to predict when those moments will continue our happen again, but when they do.
Happen robinhood tends to.
Have an outsized benefit from that a really strong tailwind.
And because of that we're not really predicting.
Short term results were more focused on kind of the long term opportunity.
And there we have some pretty dramatic and <unk>.
Helpful Tailwind for US I think crypto as you saw in Q2 is becoming incredibly.
More mainstream and accepted in a way that didn't previously exist even a year ago.
If you go back one year, we had $5 million in revenue from crypto very very small.
This year, it's 45 times higher than that it really put robinhood on the map for crypto.
And.
And in terms of trading levels overall, I would just point you to kind of the external market factors that'll give you a pretty strong indication of how we're doing so far but we think it's appropriate to provide the commentary about about Q3 and will continue to deliver on products for customers.
Okay. Thanks, so much and were just one final one for me just on a longer term opportunity you alluded to your interest in expanding internationally I was hoping you could unpack.
What's the potential strategy could be to expand abroad. Maybe what gives you confidence you can scale given a number of U S. Brokerages over the years have certainly tried and failed to expand abroad and <unk> off your primary source of revenue is also banned in a number of international jurisdictions.
Yes, what I would tell you that I am sure glad has some comments here is we've done a lot of work over the last year to year and a half.
Spanning the platform here domestically.
We're in a position to look at each international market.
Kind of uniquely based on the assets that we have today, we've got a very strong crypto business. We certainly have an investing business and we also have a growing cash management business and so theres a variety of ways that we can approach each international market, depending on the circumstances there.
In terms of whether or not payment for order flow is accepted it's not something that we look at it as a terribly high barrier for us for our investing product internationally. We think generally speaking and certainly there is a distinction from geography to geography. There is a lot of interest in investing particularly in U S companies.
And there's opportunities whether its internalization as was mentioned earlier.
Forex fees there is a number of ways that we could look at monetizing those business and the absence of payment for order flow.
That's great color thanks for accommodating the additional questions.
Yes of course, thank you.
Okay.
Alright.
Thank you everyone for taking the time for the call today.
And we look forward to catching over the next one I appreciate the questions. Thank you very much. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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