Q2 2023 Robinhood Markets Inc Earnings Call
Yeah.
Good day and thank you for standing by welcome to Robin Hood Second quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star.
One one on your telephone you will then hear an automated message advisors.
<unk>.
To withdraw your question. Please press star one one again, please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, Chris Cagle head of Investor Relations. Please go ahead.
Thank you Gigi and thank you to everyone for joining Robinhood Q2 earnings call with US today, our CEO and co founder glad tennis and CFO , Jason Warnicke before getting started I want to remind you that today's call will contain forward looking statements actual results could differ materially from our expectations and we have no duty to provide updates and Leslie.
Required.
The 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 don't Robin Hood Dotcom, our Form 10-Q filed may 10th 2023 and in our other SEC.
[noise] filings 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 with that let me turn it over to blood.
Thanks for the intro, Chris and thanks to everyone for joining US today last week was the two year anniversary of our IPO and I'm excited to announce an important milestone today in Q2, we reached GAAP profitability for the first time as a public company I'm incredibly proud of our team for their resourcefulness and tenacity.
It took to ship innovative products serve customers and manage expenses to reach this level.
Let me tell you more about our progress in Q2, starting with our business results.
Customer assets under custody grew to 89 billion in Q2 up 13% from Q1, driven by higher equity valuations and continued net deposits in July customer assets continue to grow by several billion to over 90 billion.
Looking at net deposits, we had over 4 billion in Q2 translating to a 21% annualized growth rates. This brings the total over the past year to over 16 billion as customers continue to trust robinhood with billions of their investment dollars.
Looking at our financial results in Q2, we grew total net revenues to $486 million up 10% from Q1.
And by keeping our costs lean we drove nice operating leverage in our business with adjusted EBITDA margin increasing to a new high of 31%. These results contributed to GAAP net income of $25 million and EPS of positive <unk>.
I'd also highlight that to new products I mentioned last quarter stock lending and instant withdrawals continued to accelerate each had Q2 revenues that grew another 20% above Q1 levels. The combined annualized Q2 revenue of these two products is over $90 million, which is roughly the size of our equity trading biz.
<unk> this is exciting progress and I'm incredibly proud of how well our team is executing.
Now, let's turn to our 2023 roadmap, which as you know we've organized into three areas.
Deepening relationships with our customers innovating for our active traders and launching new growth opportunities.
Let's first talk about how we're deepening relationships with our more than 23 million existing customers. Our goal is to serve the entirety of our customers' financial needs, we started with trading and investing and more recently, we launched spending saving and retirement products. We track our progress here by looking at net deposits and <unk>.
In Q2 net deposits grew at a 21% annualized growth rate and ARPA increased to $84 the highest level in the past two years, we're also making great progress growing assets per customer over the past year AUC per customer increased 37% on average and <unk>.
88% for gold customers.
One focus has been helping customers save and invest their long term money.
As a reminder, in January we launched Robinhood retirement, the first IRA with a 1% match no employer necessary and it's great to see that IRA assets are now close to $1 billion. We believe retirement can grow into a much larger part of our business, especially as we add additional products like advisory.
Last quarter I mentioned that we're really happy with the progress we've made with robinhood gold and that we're going to be adding even more features and value to the offering to that end. We are introducing a 3% IRA match for gold customers three times, our standard 1% match. We believe this offer makes gold incredibly compelling.
For retirement customers that arent already gold subscribers and will also help us grow our retirement business.
<unk> cash sweep, which offers customers up to $2 million in FDIC insurance and among the most competitive yields on cash is also continuing to grow gold cash sweep balances grew nearly 40% in Q2 and 130% year to date to reach $11 billion last week, we increased the interest rate to four.
9%.
As we've attracted an engaged more gold customers, we've seen them deposit more into their robinhood accounts and this continues to drive strong <unk> and revenue growth from our gold customers.
With our competitive four 9% rate on cash and the new 3% IRI match, we're starting to spin this flywheel even faster.
Now, let me talk a bit about the <unk> acquisition, we view credit as a strategic opportunity to both help customers and diversify our business. Many of our 23 million customers or credit card primary and we also see an opportunity to go down market and help younger people build credit right now for example.
If you're an immigrant or a student it's hard to get credit even if you have the salary and earnings potential to support. It. This is one of the problems, we're excited to salt and by doing so we.
We believe we will grow our customer base diversify our revenues further deepen our relationship with our customers after exploring the credit space for several years with X. One. We finally found a team that has the right values and DNA to build and scale a category defining consumer credit business X. One provides theyre 80.
Cardholders with an awesome stainless steel card attractive customer rewards and a sleek and user friendly mobile platform. The team is working hard to ship a great new Robinhood card that we're excited to offer to our 23 million customers and we'll expand from there.
Now, let's discuss active traders as you know over the past year, we continued to aggressively ship products and features to make Robin Hood, the best destination for active traders. These.
These include advanced charts cash accounts strategy builder stock Screeners, and most recently robinhood 24 hour market with.
With 24 hour market, we are the first U S retail brokerage to offer $24 five trading of single name stocks. We finished the rollout to 100% of our customers in July and we loved the early uptake we see we've seen strong volumes in our extended hours offering, particularly during earning season and Robyn on the 24 hour market.
It even easier for customers to trade whenever they want and we're excited to continue to expand the selection of names we offer and we will be adding nine more tickets quite soon bringing our total to 52.
As we continue to enhance the experience for active traders, we're seeing our market share of retail trading grow <unk>.
Last quarter I mentioned that we were happy with the trajectory that our options trading product was on and we are starting to turn more of our attention to our core equities business in.
In addition to 24 hour market, we shipped several tools and enhancements for our active equities traders, including longer chart history returns comparison tools and are awesome, new screeners and scanners.
And just a few hours ago, we rolled out instant deposits in cash accounts to all users customers loved these improvements and we're seeing that in our market share in Q2 equity market share was up 15% from a year ago and our options market share was up over 20% from a year ago. So far in Q3, our market share continue.
Who's to move higher in both equities and options and we're working on many more improvements that we can't wait to share with customers.
Turning to crypto, we continue to innovate and grow market share while staying mindful of applicable regulations. Our goal is to be the safest most trusted place for customers to hold trade and transact with their crypto, we see our recent launches of robinhood wallet and robinhood connect resonating with customers and we look forward to continuing to IND.
First in crypto.
The third part of our 2023 roadmap 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.
We remain focused on our ambitious goal of launching brokerage operations in the U K around the end of the year as you know we have an existing license in place a brand that resonates and experienced leaders like JV Mackenzie running the effort we've been spending a lot of time with customers and are starting to hire key positions on the ground, including bringing on Jordan since.
Claire can be robinhood UK, we're getting even more excited to drive innovation in the U K market like we've done in the U S.
Another business, we recently launched as Sherwood media or New media company that is focused on providing the best financial content covering the markets economics business technology and the culture of money. Our goal is to build on the success of Robinhood snacks, which is one of the largest financial newsletters and the U S with over 10 million.
Weekly readers.
We've already started signing multiyear advertising partnerships with NASDAQ CBOE and other partners.
Excited about our progress across multiple geographies and business lines. We believe these investments will enable us to serve more customers, while also growing and diversifying our revenues.
As I reflect on all that robinhood has accomplished so far in our history I'm energized by our even larger potential over the next decade, we're really excited about the roadmap ahead of us and there is so much to do we see a huge opportunity to innovate for our customers grow assets gained market share and change the industry.
For the better as we democratize finance for all our 23 million customers and many more to come with that I'll turn the call over to Jason.
Thanks glad it's good to speak with everyone today.
After growing revenue for five straight quarters, and getting lean on costs in Q2, we reached GAAP profitability for the first time as a public company I am incredibly proud of our team for all of their progress over the past year transforming the financial profile of our business and positioning us to drive long term shareholder value.
While we're excited about reaching this milestone we're just getting started on the journey to drive higher levels of GAAP EPS overtime.
We remain focused on investing for growth to add new revenue streams like securities lending and instant withdrawals.
As well as gain market share in our existing businesses.
At the same time, we're working to get leaner in ways that don't detract from our growth for example in Q2, we made some targeted reductions across a few teams, where we saw increased productivity and opportunities for greater efficiency, we're confident that our growth and efficiency efforts can drive great outcomes for customers and shareholders over time.
Let's now look at how our business grew in the second quarter as we make progress on our mission, we measure our progress in terms of assets under custody and net funded accounts our customers assets under custody increased 13% sequentially in Q2 to 89 billion, primarily due to higher equity.
<unk> and customers continuing to deposit money into robinhood looking.
Looking at net deposits they were $4 1 billion in Q2, which translates to a 21% annualized growth rate relative to Q1 AUC.
We believe these resilient customer net deposits position us really well for continued asset growth as markets rise over time.
Turning to net funded accounts, which represent unique customers on our platform. They increased to $23 2 million in Q2 up 70000 from last quarter and 310000 from a year ago. Additionally, we are excited about the growth we're seeing in our retirement product, which we launched in January we now have.
Over 325000 funded retirement accounts up 75000 from last quarter and gold subscribers increased for the third quarter in a row to over $1 2 million up about 60000 sequentially and 150000 since we launched the gold yield high yield offering.
Looking at our financial results, we generated positive GAAP net income of $25 million in Q2, and EPS was <unk> <unk>. When we look at our 37% increase from a year ago, it's great to see the broad improvement across revenue Opex and SBC that led to the Q2 results.
In addition, we have continued to drive profitability higher on an adjusted EBITDA basis. It grew to a new high of $151 million in the quarter and our adjusted EBITDA margin also reached a new high of 31%. We are excited about the progress we've made on margins with adjusted EBITDA margin up over.
<unk> five points from a year ago.
Now, let's review Q2 revenues total net revenues were $486 million, a 10% increase from Q1 as net interest and other revenues increased during the quarter Q2, <unk> was $84 up from 77 last quarter and the highest level since 2021.
Transaction based revenues were $193 million in Q2 down 7% sequentially, primarily due to lower crypto volumes and lower options revenue per contract.
Moving to net interest revenues they were $234 million in Q2 up 13% sequentially. The increase was driven by higher interest, earning assets short term interest rates and securities lending activity.
Q2 interest, earning assets were 26 billion up 16% or $4 billion sequentially, primarily driven by gold customers continuing to bring more deposits to Robin Hood.
Looking ahead, we anticipate Q3 net interest revenues will increase in the zone of $15 million versus Q2.
This outlook assumes securities lending revenue in line with Q2. The addition of X one and today's level of balances deposit rates and fed fund rates of course, our Q3 results could be higher or lower depending on how the quarter plays out.
Moving on to other revenues they were $59 million in Q2 up $33 million from Q1, primarily due to seasonally higher proxy revenues. Looking ahead. We anticipate Q3 other revenues will return to the mid $20 million zone, given typical proxy seasonality.
I also want to share some color on what we saw in July accounts and assets continue to grow as customers deposited into their accounts and equity valuations increased during the month July net deposits were roughly in line with the Q2 monthly average in addition, as ladder alluded to we saw trading volumes pickup in equities op.
<unk> and crypto compared to our Q2 monthly averages.
Finally margin in cash sweep balances continue to grow from their Q2 levels. We're glad to see our customers continue to engage on the platform and look forward to sharing our full monthly metrics in a couple of weeks.
Now, let's review Q2 expenses, starting with Opex prior to SPC. It was $357 million in Q2 at the lower end of our prior outlook range looking forward to the second half of the year, we're getting more efficient so even while Onboarding X. One we're keeping the midpoint of our full year outlook range.
Unchanged. We're also tightening our range as we're now halfway through the year.
Taken together, our updated outlook for 2023 Opex prior to SBC as a range of $1 43 to $1 47 billion.
Turning to SPC it was $109 million in Q2.
Around the lower end of our prior full year outlook range.
Looking ahead, given the progress we've made through the first half of the year, we're lowering our SPC outlook again this quarter.
Our updated outlook for 2023, SBC as a range of $900 million to $940 million, which implies SBC will continue to improve in the second half of the year.
Our progress here means that our outlook for 2023 dilution has also improved we now expect our diluted share count, which was $961 million at the end of 2022 to increase by 3% or less this year.
Turning to capital management, our balance sheet is strong with over $6 billion of cash and investments we use a small portion of that to run our business day to day. So we have billions of excess cash to deploy. In addition, we are now profitable on a GAAP basis, and we generated nearly $400 million of adjusted EBITDA over the past 12 months. So we believe we.
We are well positioned to deploy capital over time to drive growth and shareholder value.
One way, we deploy capital is M&A that accelerates our long term product roadmap in Q2, we acquired X, one, which we see as in a capital efficient way to bring a great new capability to our customers. The excellent platform provides theyre roughly 80000 cardholders a no fee stainless steel credit card with attractive rewards on each purchase.
And we're incredibly excited to begin offering credit to Robyn, It's 23 million customers. Looking ahead, we continue to look for M&A opportunities like this that can complement our organic product development efforts and are a good strategic financial and cultural fit with robinhood.
Another way, we plan to deploy capital over time is through share repurchases. As you know we've been working for the past six months to purchase a $55 million Robin Hood shares that emergent fidelity bought last summer. We continue to have discussions and we will update you when we have more to share.
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 Q2 was our first quarter of GAAP profitability as a public company and fifth consecutive quarter of revenue and adjusted EBITDA growth and we're not done we continue to focus on driving.
<unk> growth over time.
With that Chris Let's go ahead and move to Q&A.
Thank you Jason.
The Q&A session, we will start by answering shareholder questions from say technologies. These are ranked by the number of votes to pass over any questions that we already addressed on this call or in prior quarters. While also grouped together questions that share common theme after that I will turn to live questions from analysts so I'll kick it off with our first question from.
I'll say this one for Jason.
Our ISP asks what is the reason top management keeps selling stock.
Yes. Thanks for the question, we want to have management align their interests with our shareholders and we think our compensation structure.
Does that so most of our management team's compensation is in the form of stock and because of this it is normal for our management team to sell a small portion of their holdings as income So management sets up automatic selling plans are called <unk> well in advance of the traits that you might see come through these are.
And they sell small portions of their stock over time.
As you look across our management team, you'll also see that we continue to be large holders and robinhood stock and certainly we're highly motivated to create shareholder value.
Yes, Jason.
Question comes from Lance G, who asks can you provide an update on the 24 hour trading and how it's going well I do want to take that one.
Sure.
We're super excited to launch 24 hour market, we were the first U S broker to offer 24 hour trading of single name stocks and we rolled it out to a 100% of our customers in July just a few weeks ago, and we will be adding nine new ticker soon to trade 24, 5%.
Especially for those of you that are in the New York City area. You may have seen us doing some marketing around it we're hearing great feedback from our customers, particularly those that trade more actively and were continuing to invest to make the offering even better.
Great. Thank you. The next question is from <unk>, who asks do you have a plan for share buybacks to regain investor confidence revenue has been way under IPO valuation for more than a year now what is your plan to rebuild investor confidence Jason do you want to take that one sure. Thanks for the question also the feedback there is a.
Number of ways that we're working on delivering value for shareholders over time.
First we're investing organically in our business.
And you hear us talk about the new products that we've recently delivered as well as ones that are on the roadmap and we're super excited about that.
Second we've got a super strong balance sheet and we're using it for.
For M&A as a way for us to move faster.
You saw that this quarter with our acquisition of X one.
I also think theres more opportunities like this and we're looking out for them.
And as you mentioned share repurchases as another lever and as you know we continue to work on purchasing the 55 million shares that were acquired by emergent fidelity and over time, we will consider other ways to return capital to our shareholders.
In terms of our more recent financial progress we've hit some pretty big milestones for the business. Our revenues in Q2 were up over 50% from last year.
Our costs are down hundreds of millions and this led to us generating nearly $400 million of adjusted EBITDA in the last 12 months.
We've also reached a new high of 31% adjusted EBITDA margin this quarter, so really happy about that.
And of course really proud that we've reached GAAP profitability for the first time as a public company with <unk> per share. So all in I think we're in a great position and we've got really good momentum to deliver even better results for customers over time and shareholders.
Thanks, Jason the next couple of questions I think maybe flat and Jason can share. So our news be asks can you talk about the acquisition of credit card provider Exelon. How does this strategically help Robin Hood with concur plans was excellent and profitable company at the time of the purchase agreement.
Will this bring more users and gold users to Robin Hood.
And then <unk>.
How will <unk> be integrated into robinhood exactly.
Yes, I'd be happy to start.
We're really excited to work with <unk> and and the team over there to build a category defining consumer credit business. We think the opportunity is incredibly strategic for robinhood and incredibly useful for our customers.
One of the goals for Robinhood as I mentioned in.
Earlier in the call is we want to help customers not just trade and invest but perform.
A wide variety of their financial needs and we want to be their financial home and provide easy to use accessible interfaces and high value products credit as.
A space that's incredibly important to many of our customers is something that we've been exploring for many years.
Directly addresses a lot of feedback that we've got we've been getting from customers.
A lot of our customers.
Want a robinhood credit card from us.
And it aligns well in our mission, we believe that we can actually do something really good here and provide credit to people, who haven't always had easy access young people students and immigrants.
And one of the things, we really really liked about joining with X. One is like robinhood.
Think of this as a technology problem and they leverage technology to build a simple and seamless user experience. So I think it's going to be great for customers great for shareholders as we scale the product.
And.
I'll defer to Jason for for some of the financial details. Thanks for that at the time of the purchase X one had about 80000.
Cardholders, we haven't provided other details on their finances prior to the acquisition because really we think the big picture here is that this deal is really about the opportunity to scale credit with our 23 million customers and less so about <unk> finances prior to the deal qualitatively I would say that their business was growing leading into the acquisition we.
Really like the quality of their credit and underwriting. So we're in a we're in a good spot in their overall economics were also improving as well in terms of integration right. Now we are integrating the team and we're working closely together on strategy and Deepak is reporting directly into flat. So super excited about the potential here and we will share more ups.
<unk> as we make progress I'll also just say that I was at dinner with Deepak last night and he pulled out a prototype for the new Robinhood credit card and.
Beautiful and I'm very excited to share with our customers.
Awesome.
I look forward to getting on to alright. So the next question is from Gustav <unk>, who asks one robust Cds.
Et cetera introduced Robinhood why do you want to take that one.
Yes, thanks for the feedback.
We're always listening to customers and we want to make sure that we offer and expanding selection of products and services over time.
I would like for you and for all robinhood customers to be able to use us for all of your needs and not have to turn to other providers for investments today. We have some similar products for example, bond Etfs and Robinhood gold that offers four 9% on Uninvested cash.
With up to $2 million and FDIC insurance.
But we know that there's more things that we have to add and we're not going to stop so over time, you'll see us continuing to listen to customers and adding even more investment options.
Great. Thanks, a lot and then the next one is also for you.
Victor S asks when will AI capabilities began appearing in the application.
Thanks for your question AI is really important it's a strategic shift in how robinhood and many companies will have to think about operating their business and something I think about a lot over time to be competitive. We think every company will need to become an AI company.
Given our track record of innovation and the technologies that make up.
Robinhood offering we think we're naturally positioned to become the leader in financial services for AI.
We're excited to explore further how the technology can improve all aspects of the Robin Hood experience for our customers and create efficiencies in how we offer our products and run our business. We're actively engaged also in recruiting high quality talent to lead these efforts at robinhood.
Alright. Thank you Brad next question from Richard <unk>, who asks.
Is it too early to think that that Robin Hood is strong enough to do dividend, Jason USA Stone sure I think we're in a really strong place as a company.
Got over $6 billion in cash and investments on our balance sheet. This is the fifth consecutive quarter of revenue and adjusted EBITDA growth. We've got record margins. This quarter and we just reached GAAP profitability. So I'm really liking the strength of the business and the position that we're in right now.
In terms of returning value to shareholders. The traditional debate is share repurchases versus dividends personally I'm more inclined to use share repurchases.
And on that front as we mentioned, we're working on purchasing the $55 million emergent fidelity shares.
And we'll share more on that as we make some progress.
Thanks, Jason I think we have time for one more question, so I'm going to put together too.
Okay.
So Thomas P asks how is the growth in retirement accounts been have you been seeing many people transferring accounts over to Robin Hood for the 1% match and Michael asks does Robin Hood ever plan to offer employer sponsored retirement accounts such as 400 is what I do want to take that one.
Yes, I'd be happy to feel that glad to hear of the continuing interest in our retirement offerings. We're very proud of our retirement offering it gives our customers. Another tool that they can use to control their finances and build wealth over time customers love the 1% match and today, we announced the three <unk>.
Sent match for our gold customers. The progress so far has been great. We're approaching 1 billion in AUM and we have seen a big pickup in transfers from other institutions for the 1% match.
Regarding the second question about employer sponsored accounts, we think it's a space that is begging to be disrupted frankly.
We don't have this on the near term roadmap, but definitely wouldn't rule it out.
That said there are also tons of individuals who don't receive a match from their employer today.
If youre an employee without a match come to Robin Hood, and we will match for you.
Yeah.
Alright, Thank you Brad.
It concludes our shareholder questions from say technologies, we appreciate our shareholders taking time to ask these questions and glad in Jason and we look forward to more next quarter now I will turn the call over to <unk> to lead the Q&A from our analysts.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one one again please.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Devin Ryan from JMP Securities.
Hey, Thanks, Good afternoon, Vlad and Jason how are you how's it going.
Great I guess first question on expenses.
Count reduction.
That you noted I think the press reported 7% in June .
I'm, assuming the onetime costs associated with that are in the guide.
And then I guess I am curious if theres any future cost savings that could come with that.
<unk> some of your others, but we assume there's still probably something related to that.
Yeah, Devin we did have some onetime costs on that reduction is included in the Opex that we reported for Q2.
And we viewed these changes as more of kind of ongoing.
Management of costs and so we did not exclude them from the calculation of adjusted EBITDA This quarter.
And then in terms of kind of go forward.
The effects of the forward cost savings on the reductions.
As well as the additional costs of.
Integrating X one are all factored into the Opex guide that we gave and we tightened the range there and left the midpoint unchanged for the rest of the year.
Got it Okay, that's fine and then.
In terms of just some of the improvements youre seeing an investor engagement. Obviously, you mentioned some of the transaction activity recently, and we're seeing margin balances stabilize and improve.
You're still good deposit trends.
It sounds like all of that is continuing into July .
Just love to get a little sense of whether this is really kind of in the active trader cohort or if youre seeing some of these improvements across the customer base more broadly and then just at a higher level kind of what youre hearing from different customer cohorts around their interest in trading we've obviously been in a pretty tough and exhausting I think market for the past 18 months, just where sentiment.
As today.
Sounds like some early signs of maybe recoveries so love to talk about that thank you.
Yes so.
Maybe lead and then Vlad you can weigh in a little bit as well. So overall the sentiment from our customers about Robin it is improving and we talked about improvements in NPS year over year last quarter.
Overall up 20 points.
Year over year on average and up over 30 points for our more active traders, which is really encouraging and we're continuing just to focus in on user experience.
Doing things like adding stock screeners and scanners as well as Robin It's 24 hour market. So I think our investors are noticing Vlad mentioned, an increase in market share year over year, both in equities up 15% in options up over over 20% and as I look at kind of deposits customer.
<unk> continued to deposit their funds with robinhood.
<unk> 4 billion in the quarter and we continue to see strong deposits in July .
And trading kind of picked up throughout the quarter.
Yeah.
April I think was seasonally low and then we just accelerated as the quarter progressed and July was.
It was also good as we commented in our in our more formal comments. So overall I would say that.
The work that we've been doing improving user experience and product selection is really showing through for our customers.
Yes, I don't really have much to add we've been really pleased by by our progress Jason mentioned and reiterated the market share gains and.
I think the NPS improvements, particularly for active traders have been really good.
Been really good to see that translating to market share gains across all of the assets that our customers trade.
Alright ill leave it there thank you guys.
Thanks, Kevin.
Thank you.
Thank you one moment for our next question.
Our next question comes from the line of Dan <unk> from Mizuho.
Yes.
Hey, guys.
Great results.
Hey, how are you sorry, I had some issues with the phone and I kept getting rebooted.
So I really appreciate it great results by the way and I don't know if this was addressed.
We did some work that showed that you were gaining share from your competitor in crypto. So apologies if this was.
This was addressed but is there anything you can call out on why Youre gaining share what is driving the share gains robinhood crypto from your biggest competitor and then I have a quick follow up.
Yes.
I'll go ahead and take that.
It's a little harder in crypto to measure.
Market share, it's not as easy as it is with with equities and options but.
Our analysis it does look like we're gaining share in the coins.
That we offer.
In terms of why I'd, probably point to the value proposition, we think we're the best place.
For retail traders to buy by crypto for the coins that we offer and also we think we've got just a great user experience and so those are the those are the two things, yes, I'd also add that.
We've offered customers great value in addition to a great customer experience.
At Robinhood, you get more crypto for your dollar than most of our competitors and I think we've started to do a better job communicating that in the user interface. So we're making it incredibly clear to we're trying to make it more and more clear to customers just how good of a value they're getting.
And of course I'd add that.
It's very important for us to be the most trusted and safest company and crypto and I think.
With all the turmoil in this space.
The past year or so.
I think there has been a little bit of a flight to safety and we're seeing that reflected.
And some of the market share gains you're seeing.
And thats something that wed like to continue to invest in.
Yes, it's pretty amazing great stuff and then a quick follow up I mean, great progress on the retirement stuff I mean, we're very excited about this year at Mizuho do you think that is it a fair statement to say that over time as it grows.
So up and obviously like.
Bigger impact on miles and the <unk>.
<unk>.
It will kind of cognizant of positive inflection in the mouth because of the retirement account the retirement offering. Thank you.
Yeah.
I'd be happy to field that.
So mouse did increase from May to June .
Of course, when you think about all the things we've been focused on as a company and on the product side over the past year.
They havent naturally flown into mouse because.
Even retirement itself, it's sort of a passive long term investing product and not typically a product that you associate with sort of like <unk>.
Active trading or engagement.
Although there is.
There is there is advantages for all types of investors with with retirement products.
Active trader investments active traders or kind of a relatively small subset of the overall user base. So they drive a disproportionate amount of revenue and making them really really happy youre, probably not going to see that as reflected in the Mt metric. So we've made a lot of progress over.
For the past year, and I think thats been progress that's sort of like an another axis then the mouse and trader engagement that said.
We are working on a bunch of things that we think will bring more customers in more transactions into robinhood and we do expect over the long run the mountain metric to follow.
<unk>.
There is a lot of investments in place that we think will pay off for US there one of the things that I'm really excited about is our continuing investment in gold that really deepens, our relationships with our customers we offer them four 9% on there.
Cash sweep balances and as we announced today, a 3% retirement match and so I think as we deepen our relationships with our customers as we expand our product selection.
Going to naturally see engagement tick up over time.
Yes, I would agree great results. Congrats again, thank you.
Thanks, so much.
Thank you one moment far next question.
Our next question comes from the line of Stephen Ju back from Wolfe Research.
Yeah.
Hi, good afternoon.
Good afternoon.
Wanted to start with a question on expense you guys have done a nice job delivering efficiency gains while executing on the product road map.
Your expense per employee is still relatively elevated when we benchmark versus.
Fintech as well as retail brokerage peers and wanted to get a sense as to where do you see this metric traject ing as the business scales and as you expand your geographic footprint.
Yes, thanks for the question I'll take that one.
I would generally agree with you.
We've been focused on reducing our costs.
And rationalizing the head count and our intention is to be lean and scrapping in the way that we grow our business and drive leverage to our business over time and so we've been focused on our cost per employee as you pointed out one of the changes that we made earlier this year as we moved from a.
Stock based award program that granted that grants for year Awards.
To a program that grants awards that vest over one year, and we think that that's a prudent way to do it another thing as we look at our employee footprint, we're very heavily concentrated in higher cost areas in the U S and that represents an opportunity for us to balance out the mix of geographies that we work in.
As Robin had employees. So it's something that we're that we're working on and I see that as an opportunity.
Really helpful color and.
Speaking of operating leverage did want to ask on the profitability outlook.
Looking ahead.
Just now that you've reached GAAP profitability remind us how youre thinking about normalized GAAP margins for the business at scale and now that you've hit. This milestone was hoping you can give us an update on what the next milestone is that you're aspiring to.
Yeah. Thanks. Thanks for the question look long term, what I would tell you is that.
Our objective is to maximize.
GAAP EPS and free cash flow per share.
We're not giving any specific.
Near term milestone.
<unk>, there, but when I look at the cost structure of our business is heavily skewed towards fixed costs and less so towards variable cost, which if you can manage those fixed costs really effectively as you grow your top line you can deliver a lot of leverage to the bottom line and so as I think about like what kind of margins are possible.
For this business I don't see any reason why we can't deliver the kinds of margins that you see at other financial services companies.
Alright helpful and thanks for taking my questions.
Yes, Youre welcome thanks for the questions. Thank you.
Thank you one moment for next question.
Our next question comes from the line of Michael Cyprus from Morgan Stanley .
Hey, Mike.
Hey, Jason Thanks for taking the question, maybe just starting with the active trader opportunity set I was hoping you might be able to update us on the opportunity set with futures I know you guys have some plans to launch that this year I believe maybe you can update us on the progress there and the build out and then similarly on the cash settled.
Ex options, where is that on the priority list and what sort of investment is required on your platform to enable that or could you just flip a switch and enable that today.
Yes futures is something that we're very excited about.
We have been spending a lot of time thinking through how to make a really really great customer experience, particularly on mobile because as we look at the other offerings.
In the market, we think that there's a gap that we can fill with user experience, particularly on mobile. So we're spending a lot of time thinking through that talking to customers and we're putting together.
Really really nice offering.
Right now we're estimating that it will land in the first half of 2024.
And the team is hard hard at work just making the product is as great as possible for our customers I think on the cash settled options front.
We're also hearing that from customers that that's an attractive product.
And we will enable them to manage their risk. That's also slated to land in the first half of 2024.
Great. Thanks for that and just a follow up question on the X. One acquisition I was hoping you could talk about your go to market strategy for how you're thinking about bringing the card offering to your existing customer set and broadening out over time, where do you think there is room in the marketplace for differentiation and then can you talk about the underwriting process and the.
Or are there just given some of the potential customers may not have much income or credit history, how do you get comfortable with manage the credit risk that this introduces.
Yeah, I think that's a great question in terms of go to market, we kind of see two near term opportunities that are interesting. One is just making a great card available too.
The typical robinhood customer.
Robin Hood customers a lot of them are credit card primary and we've been hearing lots of feedback from them on what types of offerings they would like.
And we think that.
We think that we can make something that's really really compelling for them.
We also see an opportunity and I mentioned this a little bit earlier.
For people, who are younger maybe college students.
People with limited credit history, but reasonable earning potential like immigrants.
We have a hard time getting credit right now and.
And we think with technology and the underwriting capabilities that <unk> has has offered.
And there's kind of been improving over time, we can build something really really good for them as well.
Course credit is an incredibly important market large space.
As a business there's a lot of margin to be had there. So we're not just going to stop there we want to build.
Our suite of comprehensive credit solutions across multiple products for our customers. So this is just the beginning but what we think even within credit cards, there's a massive opportunity for us one of the things that we're really excited about for the excellent team as is the quality of their team around underwriting.
We're really impressed with the high quality nature of their their loan book.
Prime Prime plus so really really happy with that and in terms of their underwriting. They look at things like income and credit Bureau, and the normal things that you would expect the teams to be looking at.
Great. Thank you and congrats on the profitability milestone this quarter.
Thank you.
Thank you one moment for our next question.
Our next question comes from the line of Ken Worthington from JP Morgan.
Hi, good afternoon, and thanks for taking the question I wanted to follow up on the monthly users question earlier. So a couple of points here. Maybe first you have 23 million accounts and mouse was about 11.
So first funded accounts were at their highs in two Q and market conditions have been improving but I guess I'd call. The more innovative part of the stock market. This year, but mouse were at their lows in <unk>. So I guess, maybe first does this relationship between mouse and funded accounts seems sort of reasonable to.
Are you over time, and then maybe second as we look at this call. It 10 million account gap between the two.
A portion of these inactive accounts are ones that you think you can get to reengage in normal market conditions are if market conditions stay normal sort of over time.
Hey, Ken Thanks for the questions.
What are the what are the things that.
As a weakness.
MAA uses it's measuring engagement.
Just for those that are engaged in the months and for more active traders I think that there is a fairly high correlation there, but for the broader set of customers.
Less so.
We provided a couple of quarters ago.
Some context that.
MAA use for Q.
All of Q4 was $16 million and for the past six months.
<unk> was over $20 million and so it's not that they are dormant customer accounts that they're just not necessarily engaging every single month and thats actually for a lot of people is actually a very normal and healthy amount of engagement I do think over time as we broadened our product selection.
Deepen relationships with customers that youre going to see.
More consistent relationship between us and total funded accounts, but in the shorter term right now we have seen those kind of move in opposite directions.
Okay I'd also add that there.
There is sort of an asset depend.
Dependency here like the.
Brokerage side with equities and particularly growth stocks.
Like that that market has been doing rather well in Q2, but crypto has kind of continued to soften. So you sort of see multiple conflicting things and that can be reflected in the numbers because certain of.
A significant percentage of our customer base is.
Customers that trade crypto as well.
They use can moved up a little bit in June versus May and it moved up a little bit more in July . So it appears to be stabilizing in kind of moving back up a little bit.
Great. Thank you and just two simple numbers questions. So thanks for the retirement and the gold account numbers any chance that you would give us.
Fully paid SEC lending accounts and clients that have opted to use the cash card.
So fully paid is 1.15 million.
Cash card.
And it's a couple hundred thousand I think that our.
Funded.
About $1 million that have signed up.
And I think the ex one acquisition.
Really double down on their spending strategy, we werent Robyn had to be a place to handle all of our customers' critical financial needs.
And we want them to be able to spend with debit card or credit card.
Really at their choice and so exelon and the cash card I think are a nice compliment to each other.
Great. Thank you very much.
Thanks, Ken.
Thank you one moment far next question.
Our next question comes from the line of Ben <unk> from Barclays.
Hey, there I've got evening and thanks for taking the question.
Wanted to follow up on actually Michael's question from earlier on X. One Jason you mentioned in the prepared remarks that I think theres some credits.
Some interest income expected to come in that's related to X. One can you maybe talk about the revenue profile, you're expecting for Robin Hood between interest income and interchange revenues and how much credit exposure just robin it sort of take on with the acquisition.
Yes. So thanks, thanks for the question.
So the comments I made in the prepared remarks is that we expect interest income kind of all in.
Including X one.
To increase sequentially in the zone of about $15 million. So ex one was was a part of that.
About the geography for revenues for X one.
<unk> got the the interest income that you earn on revolving credit.
It's offset by the cost of funding and presented net for interest income.
You'll have some.
Interchange revenue, but our accounting conclusion on that looks to be that it'll be netted with the rewards cost. So so that'll be in.
Transaction based revenue, but that presented net.
So that's kind of the.
The accounting overlay for X one in terms of the possibility I mean X. One has 80000 cardholders at the time of the acquisition, we have 23 million customers that have a very nice credit profile and.
And I think over time, we can make some strategy decisions that will make credit really broadly available to our customer set regardless of their background. So.
I think theres, a big opportunity and I'm excited to see the team worked against that I would just add that one of the reasons. We got excited about acquiring this company and this team versus pursuing kind of the traditional partnership credit card model is that it.
If you think about.
X one we do have access to both transaction based interchange revenue and also the kind of more recurrent sticky lending revenue and.
This gives us an opportunity to build a diversified business and offer.
<unk> differentiated value to customers, because we have access to a much greater percentage of the overall profit pool than we would under your kind of your typical co brand partnership model, which tends to be more onetime bounty based coupled with the interchange revenue share.
Got it that's very helpful. Thank you.
Thank you one moment far next question.
Our next question comes from the line of Craig Siegenthaler from Bank of America.
Good afternoon, everyone. Thanks for taking my question Luke.
Hey, guys can you hear me okay.
Yes, I can.
Perfect. Thanks for taking my question. My question is on the U K brokerage loans. So I'm curious, how you're going to monetize it separate as the P. Five wells are different.
In the U K than in the U S with period quarter program.
Yes, thanks for the question.
We're mindful of the regulatory environment in all of the geographies that we operate in what I would say is there's a number of revenue streams that are available for us. The team is still working out the details there, but certainly SEC lending interest income. So there is a number of ways in.
We do in the U S have a gold offering so there is.
I think there's a good potential for this to be an attractive.
Business on a unit economic perspective, with or without payment for order flow and.
A big focus for US has been since we are a technology company.
Expanding internationally in a capital efficient manner without sort of.
Excessive investments and head count.
Great guys just my follow up.
<unk> exactly.
Curious also on the high level trends in both cash equities and equity options on their revenue per trade trend in the second quarter 23 versus the same period last year.
Sorry, so on options, we are seeing kind of across the industry that the take rate on options trading has been coming down this is really a.
Reflective of the overall lower volatility in the market and also a shift that's been seen kind of industry wide on a greater share towards.
ETF options.
And so for the quarter in Q2, the take rate was 45.
That was the average for the quarter it did come down as we progress through the quarter.
And as bounce back up in July slightly versus June to about 42 per contract. So.
So that's what we've been seeing there and we've been keeping an eye on it.
Thank you Jason.
Yes. Thank you.
Thank you at this time I would now like to turn the conference back over to Vlad Turner for closing remarks.
Thank you everyone for joining us today, and we're very excited to continue innovating delivering for customers. Thank you again for all the questions. Thanks, everyone.
This concludes today's conference call. Thank you for participating you may now disconnect.
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