Q1 2023 Robinhood Markets Inc Earnings Call
Speaker 1: ao
Speaker 2: Good day and thank you for standing by. Welcome to the Robinhood first quarter 2023 earnings conference call.
Speaker 2: At this time, all participants are in a listen-only mode.
Speaker 2: After the speaker's presentation, there will be a question and answer session.
Speaker 2: To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker 2: To withdraw your question, please press star 1-1 again.
Speaker 2: Please be advised that today's conference is being recorded.
Speaker 2: I would now like to hand the conference over to your speaker today, Chris Kagle, by his president of investor relations for Robin Hood. Please go ahead.
Speaker 3: Thank you, Liz, and thank you everyone for joining Robinhood's first quarter earnings call. With us today are CEO and co-founder of Vlad Tenev and CFO Jason Warnick. Before getting started, I want to remind you that today's call will contain forward-looking statements.
Speaker 3: Actual results could differ materially from our expectations, and we have no duty to provide updates unless legally required. Potential risk factors that could cause differences, including regulatory developments that we continue to monitor, are described in the press release we issued today, the earnings presentation on our investor relations website at investors.robinhood.com, and the earnings presentation on our investor relations website at investors.robinhood.com.
Speaker 3: I form 10Q file this afternoon and in our other SEC filings.
Speaker 3: Today's discussion will also include non- GAAP financial measures.
Speaker 3: Reconciliation to the gap results we consider most comparable can be found in the earnings presentation.
Speaker 4: With that, let me turn it over to Vlad. Thanks for the intro, Chris, and thanks to everyone for joining us today. We had a strong quarter. I want to call out three things that I'm especially proud of. First, our product velocity continued to accelerate with several innovative products delivered to customers. And we're not slowing down.
Speaker 4: We're enabling 24-hour individual stock trading for customers by launching 24-hour market next week.
Speaker 4: All of this is leading to financial results that keep getting better as we move closer to gap profitability.
Speaker 4: I'm excited to tell you about all this. So let's start with our business results.
Speaker 4: In Q1, customer assets under custody were up 26% sequentially to $78 billion, driven by rebounding stock and crypto evaluations, as well as continuing net deposits. If we look at net deposits,
Speaker 4: We saw $1.5 billion in March and $4.4 billion for all of Q1, which translates to a 29% annualized growth rate. And perhaps most importantly, all the new products and features we've launched in the past year are continuing to drive higher customer satisfaction.
Speaker 4: with Q1 net promoter scores improving more than 20 points from a year ago.
Speaker 4: Now, if you look at financial results, Q1 we grew total net revenues by 16% from Q4. And by keeping our costs lean, we drove nice operating leverage in our business with adjusted EBITDA up 40% sequentially. I'd also highlight that two new products I mentioned last quarter continue to accelerate.
Speaker 4: team is executing. Now let's turn to our 2023 roadmap.
Speaker 4: Since we launched over eight years ago, Robinhood has introduced several innovations that have become industry standard today. Mobile trading, seamless digital onboarding, zero commissions and no account minimums, and fractional shares. With these innovations, we've disrupted the US brokerage market and grown our business.
Speaker 4: We're now broadening our offering to include areas like retirement, advisory, and payments, and we're expanding outside the U.S.
Speaker 4: This is not only good for customers, but it also expands our addressable market. And as you know, we've organized our 2023 roadmap into three areas, deepening relationships with our customers, innovating for our active traders, and launching new growth opportunities. Let me talk about how we're deepening our relationships. Let's go ahead and see what we can do.
Speaker 4: and RPU. In Q1, net deposits grew at a 29% annualized growth rate. An RPU increased to $77, the highest level since 2021.
Speaker 4: Robinhood retirement, the first IRA with a 1% match, no employer necessary. We've continued to enhance the product. Customers have already invested over half a billion dollars into their IRAs. It's great to see this early customer response. Teams roadmap is full and we think retirement has a ton of growth potential.
Speaker 4: We also love what we're seeing in Robinhood Gold. At the end of Q1, Gold subscribers continue to increase up to 1.2 million, and Gold cash sweep balances were up to $8 billion. Our Gold yield is now 4.65%, and we're offering up to $2 million in FDIC insurance starting June 1.
Speaker 4: We see a big opportunity here to provide differentiated value to customers and we're working hard to get the word out even more including by launching a new marketing campaign across multiple channels. You may have seen our TV ads during the NBA playoffs. What we've seen from gold in the past six months gives us a lot of confidence to increase our investment and we're looking for to unveiling some new gold features in the coming months that provide our gold customers even more differentiated value.
Speaker 4: Finally, we're going to deepen relationships with our customers even more by taking our first steps in advisory. Our goal is to provide a personalized advisory experience, much like what high net worth individuals have traditionally received from human advisors, but at a much lower price point by using technology.
Speaker 4: We believe this can help a lot of people who want access to advice, but have been deterred by the traditional 1% annual fee. We're excited to share more with you later this year.
Speaker 4: Now, let's discuss Active Traders.
Speaker 4: Over the past year, our work on options, including advanced charts, cash accounts, and strategy builder, help drive Q1 option contract volumes up 16 percent, and Q1 active trader NPS up over 30 points year over year. We feel like we're on a good trajectory with options, and we have now turned our focus toward core equities offering.
Speaker 4: In April , we started rolling out Stock Screeners, a powerful research tool with the simple and beautiful user experience our customers have come to expect from Robinhood. We really love what we've built here and we're excited to get it into more of our customers' hands.
Speaker 4: And just ahead of this call, we announced the launch of 24-hour market, which will make us the first U.S. retail brokerage to offer 24-5 trading of single name stocks. This is an exciting upgrade to our stock trading product. It allows our customers to better manage their risk and take advantage of opportunities no matter what time of day they arise.
Speaker 4: We're starting with over 40 well-known stocks and ETFs and plan to expand from there.
Speaker 4: And as we look ahead, we're also working to add a broader selection of assets to Robinhood. In March, we applied for a Futures Commission Merchant License. Pending regulatory approval, we hope to launch future trading around the end of this year. There's so much more to build for our active traders and we're excited to continue to innovate for them. The third part of our 2023 roadmap.
Speaker 4: is exploring new growth opportunities to broaden the scope and geographical reach of our products so we can add more customers and increase our revenues over time. In Q1, we rolled out our non-custodial Robinhood wallet, which customers have downloaded in over 130 countries around the world.
Speaker 4: Customers love having total control of their crypto and NFTs, as well as the no gas fees for coin swaps on the Polygon chain. There's a lot more to build here, and we're encouraged by the early user feedback.
Speaker 4: As we brought Robinhood Wallet to market, we found that one of the biggest problems was that the fiat to crypto on-ramp solutions available in market were too cumbersome and expensive to use. So, we built our own that we're calling Robinhood Connect, and it leverages the multiple payment rails and robust trading infrastructure we've developed.
Speaker 4: Finally, we're making progress towards our ambitious goal of launching brokerage operations in the UK by the end of the year. We have an existing license in place, a brand that resonates, and experienced leaders running the effort. So we're excited to launch and start driving innovation in the UK market like we've done in the US over the past eight years.
Speaker 5: value.
Speaker 3: As I look back over the past year, I'm incredibly proud of how our team executed to transform the financial profile of our business.
Speaker 3: While a year ago we had our lowest quarter of adjusted EBITDA, in Q1 we matched our all-time high. We grew revenues for four quarters in a row while getting to a leaner operating model. As a result, our Q1 adjusted EBITDA of $115 million is up over $250 million from a year ago. On an annualized run rate basis.
Speaker 3: That's an increase of more than $1 billion. And our Q1-adjusted EBITDA margin of 26% was an all-time high.
Speaker 3: And we aren't stopping here. We are committed to becoming profitable on a gap basis, and we're making good progress on that front. Looking at our Q1 Gap results, EPS was negative 57 cents.
Speaker 3: This included a one-time non-cash charge from our founders who canceled their 2021 equity awards that significantly reduces our SBC quarterly run rate going forward. EPS prior to the 2021 Founder Award cancellation was negative three cents.
Speaker 3: so we're getting much closer to gap profitability. Now let's look at our first quarter business results.
Speaker 3: Customer assets under custody increased 26% sequentially in Q1 to 78 billion as growth stock and crypto valuations rebounded and customers continued to deposit money into Robinhood.
Speaker 3: Looking at net deposits, they were $4.4 billion in Q1, which translates to a 29% annualized growth rate relative to Q4 AUC.
Speaker 3: These resilient customer net deposits position us really well for continued asset growth as markets rise over time.
Speaker 3: Turning to net funded accounts, which represent unique users on our platform, they increased by $120,000 in Q1 to $23.1 million.
Speaker 3: Additionally, we now have over 250,000 retirement accounts that already have an average balance of over $2,000.
Speaker 3: The vast majority of these retirement accounts were funded by existing customers who are significantly increasing their average AUC at Robinhood by making these IRA contributions.
Speaker 3: We're continuing to work on new disclosures to highlight progress like this as we deepen our relationships with customers.
Speaker 3: As for monthly active users, they were 11.8 million at the end of Q1, up from 11.4 million a quarter ago.
Speaker 3: Now let's review Q1 revenues. Total net revenues were $441 million, a 16% increase from Q4, as transaction and net interest revenues increased during the quarter. Q1 Arpo was $77 up from $66 last quarter in the highest level since 2021.
Speaker 3: Transaction-based revenues were $207 million in Q1, up 11% sequentially.
Speaker 3: equity and options volumes picked up from Q4, and crypto volumes were in line with Q4. Moving to net interest revenues, they were 208 million in Q1, up 25% sequentially. The increase was driven by higher securities lending activity, cash sweep balances, and short-term interest rates versus Q4 levels.
Speaker 3: partially offset by lower average margin balances. Q1 interest-earning assets were 22 billion, 21 percent, or 4 billion sequentially, primarily driven by gold customers continuing to bring more deposits to Robinhood.
Speaker 3: Looking ahead, we anticipate Q2 net interest revenues will be up roughly 15 million from Q1.
Speaker 3: This outlook assumes the Q1 level of securities lending revenue and today's levels of balances, deposit rates, and Fed Fund rates.
Speaker 3: Of course, our Q2 results could be higher or lower depending on how the quarter plays out.
Speaker 3: Moving on to other revenues, they were $26 million in Q1, roughly flat from Q4. Gold subscribers increased for the second quarter in a row to $1.2 million, up about $40,000 sequentially.
Speaker 3: We love that more customers are benefiting from gold and this is also good news for our revenues.
Speaker 3: Gold subscribers have ARPU, that is multiples of our average customer, as they bring more assets and use more of our services. This is also true for newer cohorts that joined to take advantage of our high yield offer. This gives us a lot of confidence to keep investing in the gold value proposition. Looking ahead, as you know, Q2 is proxy season, which drives a seasonal increase in other revenue.
Speaker 3: and our SAID Technologies team is managing Robin Hood's proxy services this year. Because of this, we continue to expect a sequential increase of around $30 million for other revenues in Q2, with Q3 returning to roughly Q1 levels. I also wanted to note that with April being tax month.
Speaker 3: to a new high of 10 billion earlier this week. For MAUs, they declined about 3% in April . And for trading, while options and equities were off 17 and 27% respectively, versus the Q1 monthly average, crypto volumes were in line with Q1.
Speaker 3: We hope this color is helpful ahead of providing our monthly metrics next week. Now let's review Q1 expenses. At a high level, we really like the operating leverage we're generating as we stay disciplined on expenses. One measure we track is annualized revenue per employee. In Q1, it was $760,000, which is more than double from a year ago. It was also great to see Q1 adjusted EBITDA grow 40% from Q4.
Speaker 3: more than twice as fast as total net revenue growth. Looking more closely at our costs, let's first review OpEx prior to SBC. It was $352 million in Q1, slightly below the lower end of our full year 2023 outlook range.
Speaker 3: Looking forward, there's no change to our full year outlook. We continue to expect 2023 OptX prior to SBC to be in the range of 1.42 to 1.48 billion.
Speaker 3: And as a reminder, our annual employee merit increases were in March, so you'll see that full effect in Q2. Turning to SPC, it was $598 million in Q1, which included the $1 time $485 million non-cash charge from the Founder Award cancellation.
Speaker 3: This Q1 result was about 30 million better than our previous first quarter outlook. We're flowing this through into our full year 2023 SBC outlook to improve it to 925 million to 1.005 billion.
Speaker 3: I also wanted to highlight that over the long term, we think it's important to manage share-based compensation as a percentage of revenue to lower levels. In Q1, apart from the Founder Award cancellation, SBC was 26% of total revenues, down significantly from a year ago. The Founder Award was a percentage of total revenues, down significantly from a year ago.
Speaker 3: And as we look ahead, we're working to lower that percentage more over time.
Speaker 3: Now turning to capital management. In Q1 our balance sheet remains strong with about six billion dollars of corporate cash and investments.
Speaker 3: This includes about $500 million that we moved in Q1 from cash into a laddered portfolio of treasuries and other high quality assets with an average duration of less than a year.
Speaker 3: As for capital deployment, I wanted to briefly note that we are making some progress on discussions to purchase most or all of the 55 million Robinhood shares that were acquired last summer by Emergent Fidelity Technologies.
Speaker 3: We don't have any specifics to share yet, but we look forward to providing updates when we can. In closing, I'm really pleased with the financial progress we've made over the past year while continuing to deliver new capabilities and enhancing customer experience. Q1 was the fourth consecutive quarter of revenue and adjusted EBITDA growth.
Speaker 3: and we continue to focus on driving profitable growth over time.
Speaker 3: under driving profitable growth over time. With that, Chris, let's move to Q&A.
Speaker 6: Thank you Jason. For the Q&A session we'll start by answering shareholder questions from Say Technologies.
Speaker 6: For the Q&A session, we'll start by answering shareholder questions from SAE Technologies. These are ranked by number of votes.
Speaker 6: We'll pass over any questions that were already answered on the call or in prior quarters. We'll also group together questions that share a common theme. After that, we'll turn to live questions from our analysts.
Speaker 6: So I'll kick it off with the first question from Say. This one's from Jason. So two questions we're combining here. The first is, Siraj P asks,
Speaker 6: What is the plan to be a profitable company?
Speaker 6: And Gregory P. asks, what are the primary ways management plans to return value to shareholders in 2023?
Speaker 3: Great, thanks for the questions. We're really focused on three things to drive shareholder value. First, we want to keep launching new products and improve upon our existing products. We've made a lot of momentum here and our product velocity is fast as we've seen it so far as a company. So we feel really good about that.
Speaker 3: The second is we want to drive profitable growth and we're going to keep our costs lean and find ways to drive even more efficiency over time. This quarter, it was nice to see our adjusted EBITDA grow at twice the rate of our revenue growth and we're working on driving leverage in our business even more over time. And then lastly, what I'd say is we want to efficiently deploy our capital. This would include...
Speaker 3: Reaching profitable growth, I don't want to predict any particular timeline on that, but we are getting really close. Excluding the founder award cancellation, our EPS was minus three cents per share. So we're going to keep focusing on rolling out new products and keeping our costs lean and we should get there over time. Thanks for the question.
Speaker 6: All right, thanks Jason. Next question is also for you. Philip asks...
Speaker 6: What does Robinhood's financial position look like after all the recent regional bank failures? What does Robinhood do to ensure that it doesn't find itself in the same position as those from SPV, Signature Bank, and First Republic Bank? And a similar question comes from Masur. With so many banks going under, what is Robinhood exposure?
Speaker 3: Yeah, thanks for these questions. First, I think it's really important to clarify that Robinhood is not a bank. We keep our customer cash liquid, and we don't have the risk of asset liability mismatch that banks have to manage. Also, it's great to see that our customers continue to deposit funds with us. Gold cash sweep balances were up 67% from last quarter, up to $8 billion.
Speaker 3: And in March when all the banking turbulence happened our customers deposited 1.5 billion dollars with us. So we think we're in a really good position and particularly as customers respond to our great offerings for gold members. So thanks for the question. All right. Thanks Jason.
Speaker 4: and we recently launched retirement as as you're probably aware and we now have hundreds of thousands of customers that have multiple accounts with us so with retirement it was really the first time that a customer could open multiple brokerage accounts within our product.
Speaker 4: And it took a lot of work to build the infrastructure for that and build the product affordances necessary. So now it's much easier for us to add different account types. And we hear from customers, they want to teach their children about investing. They also are interested in joint accounts and would like to...
Speaker 4: collaborate with their finances and manage them with their partner. So these things are definitely part of the longer term roadmap. We want to make sure we continue deepening relationships with our customers as we've been doing with the launch of retirement. Keen to do it, no specific timeline to share, but stay tuned.
Speaker 6: All right, thanks, Vlad. The next question is also from Edward O, who asks, if I'm not launched IRAs about six months ago, how has adoption been, how did it compare to leadership expectations, and are retirement accounts a key part of the development strategy going forward?
Speaker 4: Yeah, we're really pleased with the contributions we've seen so far. Over half a billion in assets leading to $5 million in matches to customers. And we're seeing customers continuing to bring more of their cash onto the platform. The feedback that we're hearing has been really good as well. Customers love the match. They also love the fact that we're providing recommendations.
Speaker 4: and the recommendations are now being used by two-thirds of customers that onboard onto retirement. And we're excited about that, especially when we think about what that means for the future of advisory and providing personalized, ongoing advice to our customers to help them manage their investments.
Speaker 3: One thing that I'd add is if you look at total accounts that we added this year between brokerage and retirement, it was about the same number of total accounts that we opened in all of last year. So it's really nice to see this kind of acceleration in new account growth.
Speaker 3: Great. Thank you, Vlad. Thank you, Jason. The next question is for Jason. Richard S. asks, can Robinhood shareholders have free access to gold? Yeah, thanks for the question and thanks for letting me answer this one instead of Vlad. We want to make gold the best deal in financial services. We think it's a great deal at $5.
Speaker 6: On the last call, it was mentioned that Robin Hood was looking into adding an advisory program to their services.
Speaker 4: What will this look like and are there plans to work with a seasoned wealth management company or will it be kept in house? Hi Sajjan. Yes, we mentioned it on on the last call and we are getting very excited about what we can do in advisory. We've hired some great people in particular our head of investment strategy Steph Guild.
Speaker 4: who's an industry vet with 20 years of experience at large financial institutions. You might have seen, she's got a weekly column where she talks about the markets, that's quite good. And we really think that in Robinhood, we can build the expertise necessary to give our customers
Speaker 4: I think we can build something really great for customers here. Awesome. Thanks, Blyad. Blyad, the next question is also for you. So, G C asks,
Speaker 4: Is Robinhood exploring ways to leverage AI into its services? Yeah, I think that over the next few decades, every company will have to transform into an AI company. Looking at the past 20 years and how sort of the companies that are
Speaker 4: of all companies and that's how we're thinking about it. Robinhood has always been early to adopt new technologies like data science and machine learning, both to lower our costs and deliver product experiences and value for our customers. And we're really excited to continue to embed AI as a tool both internally and in the future.
Speaker 6: also for you. It's from Justin Pee who asks, when will Robinhood support an official trading API for creating trade automation like other brokers?
Speaker 4: which we announced and started rolling out recently. That leverages some of the trading infrastructure on our crypto side for a developer and B2B targeted product. Making it easier for our active traders and innovating for them is top of mind.
Speaker 4: to change this perception? At Robin Hood safety is our top company value and when I think about what that means several things come to mind. First is great customer support and we made tremendous progress over the past few years adding more channels, improving the quality of customer support.
Speaker 4: when they need us the most. And we made tremendous progress there too. The third is the safety of customers' assets within Robinhood. And as we announced earlier in the call,
Speaker 4: With Robinhood Gold, we're offering a 4.65% APY on customer uninvested cash, and we're also offering 2 million of FDIC insurance starting June 1st. So your money is going to have higher insurance in Robinhood Gold and in our cash sweep than you would get at a typical bank.
Speaker 4: I should also mention, as with every brokerage account, your brokerage assets are civic insured and we also have excess civic coverage. So what does this mean? When we look at kind of how customers are engaging with the service, we're seeing higher NPS indicative of increasing customer trust.
and the results speak for themselves. Customers are continuing to trust us with their deposits. When we see a lot of institutions in the banking sector and elsewhere seeing outflows in this quarter, we're continuing to see strong inflows with...
1.4 billion in net deposits and 4.4 billion in Q1. So we feel really, really good about customers increasingly trusting us. All right, last question from Say. And this is for Vlad. Jesus A asks, how is Robinhood better or different from other platforms? What moves will Robinhood be making to become the top trading platform?
Well, in my opinion, we are the most innovative trading platform in the marketplace. We've introduced several new industry innovations that have become norms, not just zero commission, no account minimum trading, but also recently retirement with a 1% embedded match.
And I'm very, very excited about the things that we're launching and we have launched in the past few months. All right. Thank you, Vlad. Thank you, Jason. And that concludes our shareholder questions from Say Technologies. We really do appreciate all our shareholders taking time to ask these questions of Vlad and Jason.
and we're looking forward to more next quarter. Now I'll turn the call over to Liz to lead Q&A from our analysts.
As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
In the interest of time, we ask that you limit yourself to one question and one follow-up.
Our first question comes from a line of Rich Rapetto with Piper Sandler.
Good evening, Jason. Congrats on the improved profitability in the quarter and great disclosures too. My question is, Vlad and Jason, is on the net interest income and improved 25% quarter over quarter.
And Jason, I know you talked about a $20 million increase, but this turned out to be $41 million. And I guess I'm trying to see what surprised you. I could see the fully paid securities lending was a little bit better, but what surprised you to give you that bump up in NII quarter over quarter?
Yeah, thanks for the question, Rich, and we were pleased to see the pick up in NII. I mean, there's a few things that I'd call out. You highlighted securities lending. You'll recall that last quarter was a particularly soft quarter for SEC lending. And at the time of the call, we were cautious in the way that we were evaluating the outlook for Q1. And the activity for SEC lending in Q1 was strong. And in addition to the strength of just the activity, we were very confident that the
pleased. It was higher than we expected and we were pleased with that.
Got it. And my follow up will be on sort of the product innovation side, Vlad. And you talked a lot about advisory and hiring a new person. But I would expect when you talk that Robinhood could do with technology driven, I would expect.
Any color, is it going to be more of a robo-advisor type platform or any insight into what the product will look like? Yeah, I don't want to share too much, but what I'll tell you is we want to go beyond just being a robo-advisor and we really want to use
We want to use technology to give personalized advice at scale, much like what a high net worth individual would come to expect from a financial advisor that they'd be paying 1% AUM advisory fee for. Robinhood can build a great experience.
for that, that's mobile first. And of course, we'll plan to use every technology that we think is gonna be useful in the market to make that happen and deliberate in a scalable way.
that's mobile first, and of course we'll plan to use every technology that we think is going to be useful in the market to make that happen and deliver it in a scalable way. Thank you guys.
Very helpful. Thanks Rich. Our next question comes from Dan Dolef with Mizuho. Hi guys. Excellent results. Excuse me if I missed it. You might be about an April trend in the NSCS. Can you give us a sense of what is going on? Is it seasonal or how should we interpret it?
Oh, April , thank you. Yeah, the the connection is a little poor, Dan, but I think we got your question. So April , as you know, is tax month. And, you know, across the industry, you tend to see customer dollars flowing, flowing for taxes and less in trading and engagement and deposits.
We actually had a really strong April from a deposit perspective, 1.4 billion coming in. But trading was softer than what we saw in Q1. That's normal. It's expected. We saw it last year. And as we look across industry results, it's pretty much in line with what others are seeing as well. How many lifebloods do we have?
Perfect. And a really quick follow up. Coinbase said that they raise prices for small ticket items on crypto. Have you seen any of that on your platform? Thank you and great results again. Yeah, we've kept the rebates on our crypto offering the same. And, you know, we've been pleased by.
the market share that we have in the retail US crypto offering we want to make sure that we offer
great pricing to customers and we think that over time keeping the pricing very competitive is going to lead to increased market share gains over time. So it's really we want to make sure our pricing is awesome and the user experience continues to be great for the crypto offering and we think that it's got a
break future and we see potential to grow our market share there.
with KeyBank Capital Markets.
Hey, everyone. Thanks for taking the question. Hey, just maybe a couple. First on Robinhood Connect, just kind of curious how you see this product scaling, just considering kind of the external nature of the product. And then I need kind of comments on monetization of Connect would be helpful.
Yeah, absolutely. I can field that one. So really, Robinhood Connect is an on-ramp for third-party developers to integrate fiat to crypto into their apps. And we see a big opportunity for us in this space because the infrastructure that we've developed for the Robinhood app and the Robinhood one.
space.
We see that other on-ramps don't have great funding options. They either offer only card or some of them that offer bank linking are just prohibitively expensive. And in general the costs are quite high, like north of 5% for transaction.
And so we see an opportunity to take what we built on the consumer side and really offer a differentiated product for customers. In terms of monetization, we believe that we can offer the product at lower prices and still monetize with taking a percentage of every transaction and earn healthy margins for the business over time.
That's great. Thank you. And then just around 24 or 5 trading just kind of curious any thoughts in terms of what sort of engagement uplift you might kind of expect or anticipate around that. Thank you.
Yeah, it's very hard to predict what's going to happen with 24-5 trading since this is fundamentally new in the market and Robin is going to be the first retail broker in the US to offer this for individual names.
You know, I think that what we'd like to see is sort of good liquidity available for these symbols and liquidity be a little bit smoother and not as much sort of happening on the open and the close. And I think that would be really, really interesting for the markets.
In terms of engagement, we have seen with hyper-extended hours, which we launched last year, that we saw increased volumes, but I think it's probably a little bit early to give estimates for what we'd see in terms of volumes there. Makes sense, thank you.
Our next question comes from a line of Devin Ryan with JMP Securities.
Our next question comes from a line of Devin Ryan with JMP Securities. Great. Hi, Vlad. Hi, Jason. How are you? Great. Thanks, everyone. Thanks, everyone. Thank you for joining us. We'll be getting started in about a minute.
Hey, Devon, how are you doing? Doing great. Start with one for Jason on just the corporate cash. So obviously the firm continues to sit on a lot of cash and liquidity here. Adjust the EBITAS now. It's very solidly positive. So it would seem like you're an improving position to play offense. And so appreciate you're looking into repurchasing the shares from emerging technologies.
is one use, but just love to maybe talk about or get an update on what the other top priorities are. And then on the M&A front, you know, the type of opportunities that you're seeing in the market today. And Jason, if you can, just remind us on those financial hurdles that you need and maybe, you know, how that's interplayed with some of the recent deals that you've done for context.
Yeah thanks Devin, great question. So first of all in this market backdrop I do like having a really strong balance sheet and as you mentioned you know six billion dollars in cash and investments given this market backdrop I think has been a source of strength for us. I like that but you know it's not an ideal capital structure and over time I think you know you'll see us continue to work on.
slow to face that reality. I think it's been more constructive now, and it's up to us to look at opportunities. You talked about hurdle rates. It's looking at things like what's the return on it at the capital. We'll be accretive to our business. And then in terms of the business itself, is it going to accelerate our roadmap and also the team?
that we require kind of share the values that we have around a culture around safety and compliance, as well as an obsession for customer experience. So these are all the things that we are looking at, and like I said, I'd say that the backdrop is improving there.
Okay, great color. Thank you. Just a follow-up here, I want to dig in a little bit on the futures offering and just get a sense of what the timeline is going to look like to get into that business. Then in terms of the target audience here, how much demand are you seeing from your existing customers for this product, or is this more about accelerating the push with active traders and just sizing the opportunity?
Could this actually be more than 10% of darts over time? We've seen what it is for some others, but just love to get a sense of the addressable market for you. Thanks. I'd be happy to field that one. We're very excited about launching futures trading to our customers. And as I mentioned in the call, the goal is to launch it around the end of this year, pending, of course, regulatory approvals.
on our application. I think as we think about it, we see two opportunities. One is making a really great product for our active traders. As we've talked about a little bit over the past few quarters, active traders have been an increasing area of focus for us. We've been able to drive active trader NPS, significantly higher in the past year.
We love that our active traders are feeling the love and seeing improvements in the customer experience for the product. And we think that future trading is an innovative new asset that will allow them to manage their risk in new ways. The second thing that we think we have an opportunity to do is if you look at what we...
One thing we'd like to do is just simplify that and make that really, really useful and easy to use in mobile. And we think that there's a lot of white space ahead of us there. And I want to give a special shout out to J.B. McKenzie, who joined as the GM of our futures business. And I know that he's...
very, very excited to launch this as quickly as possible. And maybe this question provides a little bit extra motivation, not that he needs any. Exactly. Great.
Our next question comes in the line of Michael Cypress with Morgan Stanley .
Great things. Good afternoon and great to see the progress in Singapore's gap profitability here. So the question is how do you think about sustaining gap profitability once you cross there? You've been offended from interest rates have been gone higher. So if the Fed were to cut, how do you think then impacting revenues at this point and which products and revenue pools?
do you think have the most compelling profitable growth over the next 12 to 24 months? Yeah, thanks Mike. It's Jason. I'll start and we'll see if Vlad wants to add any color. In terms of reaching and ultimately sustaining gap profitability, there's a couple of elements that are really important. The first is continuing to improve our use
NPS score being up over 20 points overall and up over 30 points for most active customers. So really encouraging signals. To your point, our revenue is diversifying interest income as becoming a larger portion of that. Things like securities lending is also contributing, but also interest on cash as well.
When we think about the dynamic between rising rates and falling rates and the effect on revenue, there's a couple things that I point out. First, there is a bit of a natural offset between changes in interest rates and demand for equities or trading activity. And so while it's not a perfect correlation, they do tend to move in opposite directions. And we think that's
you know, good for kind of the balance of our business. I'd also say that as we continue to roll out new products, that that's just going to further diversify and really strengthen the revenue profile, you know, of our business. The last thing we're looking at, and, you know, I mentioned it last quarter, is we are evaluating whether we want to use any kind of hedging for significant rate drops.
You know, to manage our sensitivity to interest rates, we've been looking at whether option 4 strategy, for example, could be a way to maintain liquidity, do it at a modest cost, you know, and not introduce any P and L variability. We haven't made a decision there yet. But it's something that we're continuing to look at.
Yeah, the only thing I had at is just that I think the team's done a fantastic job over the past year diversifying our business so that we can be sustainable in a high interest grade environment. I think before the fear that we were getting from analysts in the community was doing great in a low interest rate environment, but what if rates take up, how will you do then? And I think we've shown that this is a resilient business. The team.
on the regulatory landscape. What steps are you taking to protect Robin Hood and what risks is any do you see?
You know, the things that I'd point out is that, you know, we've been a safety first company for a long time. It's been a core value. In fact, it's our top company value. And, and Vlad's talked about it on, on these calls in the past. What this has meant is that, you know, we've been very deliberate in the way that we expand our coin offering. We've got a rigorous coin framework and we're very careful in the way that we.
evaluate those points. I'd say if you compare Robinhood to perhaps others across the industry, we consistently demonstrate that we have respect for the securities regulations of the country. And this has led to us making tough decisions on product selection. We don't offer staking. That's something that's been under scrutiny as well. And so,
We'll continue to operate with that mindset. We want to be on the right side of these decisions. At the same time, we want to innovate for customers. And I think additional regulatory clarity would be super helpful on that front. Great, thank you. Thanks. Our next question comes from Will Nance with Goldman Sachs. Hi, good evening.
that mindset, we want to be on the right side of these decisions. At the same time, we want to innovate for customers. And I think additional regulatory clarity would be super helpful on that front. Great, thank you. Thanks. Our next question comes from Will Nance with Goldman Sachs. Hey, good evening. Thank you. You're welcome.
I wanted to follow up on the other question on the security lending. It sounds like fully paid adoption with a partial driver there. It's not like that's, you know, you're baking and kind of consistent security lending revenue in the current quarter. You know, when I look at the fully paid versus margin, you know, fully paid definitely up more than margin sequentially, but even the base level of margin, I think, was up 70% sequentially. So I was just wondering if you may be talking about...
how much of this was sort of environmental to the demand and what kind of rates you're able to get on that and how much of this you think is, maybe just talk about the sustainability in the current macro environment, particularly in light of some of the reduced engagement levels that we've seen, that you're kind of referencing in the month of April . Yeah, and I'd say that, thanks for your question, Will. I'd say that the securities lending business is less beholding to kind of monthly engagement metrics. It's based more on...
how many of our customers have opted in, whether or not they're engaging on a monthly basis with us. You know, we've seen overall strength in the market for securities lending this quarter. I'd say Q4 was unusually soft. It was one of the softest quarters that I've seen in the years that I've been here. But there was a strong backdrop in Q1 that continues here into Q2. So demand was higher. It allowed us with the backdrop of adding more customers to the fully paid securities program.
securities lending program to be able to lend out even more, help our customers you know optimize their own yield by participating. And the rebates that we saw were particularly strong. You know so far you know in Q2 we continue to see you know levels kind of consistent with what we were seeing in Q1.
Got it. That's super helpful. And just maybe a kind of detailed modely question on the options take rate. It seems like that's been coming down a little bit over the past several quarters and it took, you know, kind of came in a little bit lower than what we were looking for. Just wondering if you could talk about drivers of that. It seems like it's been more on the rebate side and less on the actual volume.
Yeah, sure. So the take rate is really just an effect of mix. So no change in the pricing structure, but the tier that includes SPY contracts has just been increasing as an overall percentage in this market backdrop. And that's shown up in a reduced blended rate. Got it. Appreciate you taking the questions.
The take rate is really just an effect of mix. No change in the pricing structure, but the tier that includes spy contracts has just been increasing as an overall percentage in this market backdrop, and that's shown up in a reduced blended rate. Got it. Appreciate you taking the questions. You bet. Thanks, Will. Thanks, Chris.
Our next question comes from Ken Worthington with JP Morgan. Hi, Ken. Hi, good evening and thanks for taking the question. Can you give us an update on the new cash card? What has been the uptake on the new card and any color on what transaction activity looks like there? Yeah, sure. I mean, the cash card is off to the next level.
evaluating the value proposition. I think longer term this has potential to be a meaningful engagement driver for us and will help us deepen our relationships, but we're not there yet, but it's early. Thank you, and then maybe following up on options, trading there continues to represent the majority of transaction revenue from Robinhood.
We've seen index options trading, dominate certain parts of retail, particularly zero-day options.
Any color you can give us and what portion either index options are or if zero day options has been a driver of some of the growth that you've seen. And then maybe just to help size options for us. You had 23.1 million accounts, MAUs of 11.8.
What portion of your customers are trading options for you in this quarter, over the last year? Thanks.
Sure, Ken, I'll start and we'll see if Ladd adds any colors. So first I'd say hundreds of thousands is the order of magnitude on options traders, so a relatively small portion of our customers are engaged in options trading every month. In terms of zero-day options, we don't currently offer those. Something that...
We do hear from customers that they're interested in. But we don't offer cash settled index options. We don't offer cash settled index options. We have zero day, but they're ETF. Yeah, ETF options traded on the platform. Thanks, Vlad. And so, you know, in terms of expanding that to cash settled.
question. I just wanted to confirm the April , one of the April trends, I believe it was mentioned that the MAUs were down after it was nice to see them increase in sort of both the trends this past quarter. Anything to sort of take into account there? I know there's a lot of discussion already on some of the April dynamics with patch season and so forth. Thank you.
Yeah, thanks for the question. So, yeah, we saw MAUs go from 11.8 to 11.4 in April . And really what I had pointed, it's in the zone of where we were, sorry, 11.5.
It's in the zone of where we were in Q1. It's nice to see that it's kind of stabilized and I just point to the seasonal dynamics of April that I referred to earlier in my comments. Understood. Thanks so much.
Our next question comes from Mark McLaughlin with Bank of America. Hey guys, thanks for taking my question. I had for the first one, I was curious, what was the decision behind the reallocation of I assume cash to help to maturity securities? Because I know you guys had mentioned earlier, you're not taking on a lot of duration risks. So I just kind of wanted to know the accounting.
and that was the logic behind it. Just looking at the fair value, it's right on kind of what the purchase price was of the portfolio. Awesome, thank you. And then for a quick follow-up, I know in quarters past you guys had kind of talked about expansion, especially starting kind of in the UK.
Not, obviously, trying to monetize client cash balances with a bank charter helps when moving abroad. It makes things a lot less complicated. Any updates on international expansion, or how are you guys thinking about that going forward?
Yeah, we're making progress towards the goal of launching brokerage in the UK by the end of the year.
As I mentioned in the past, we've got an existing license in place. We think that our brand is very strong and will resonate very well in the UK and experienced leaders running the effort. So stay tuned, but we're excited to make it happen.
As I mentioned in the past, we've got an existing license in place. We think that our brand is very strong and will resonate very well in the UK and experienced leaders running the effort. So stay tuned, but we're excited to make it happen. Awesome. Thanks guys.
Thank you. That concludes today's question and answer session. I'd like to turn the call back to Vlad Tanov for closing remarks.
Yeah, thank you guys so much for listening and asking questions. We're very excited by the progress and check out 24 hour market. Very excited for that to be launching next week.
This concludes today's conference call. Thank you for participating. You may now disconnect.
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