Q3 2023 Robinhood Markets Inc Earnings Call

November 7, 2023

Okay.

Good day and thank you for standing by welcome to Robinhood third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the presentation. There will be a question and answer session to ask a question simply press star one one on your telephone.

You will hear in message advising your hand is raised to withdraw your question Press Star One again and please be advised that today's conference is being recorded.

I would now like to turn the call over to Chris cargo Vice President of corporate F. P N E and Investor Relations.

Thank you Carmen and thank you to everyone for joining <unk> Q3 earnings call.

Today, our CEO and co founder glad tariffs 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 unless legally required potential risk factors that could cause differences, including regulatory.

Developments that we can send you to monitor are described in the press release, we issued today the earnings presentation on our Investor Relations website at investors Dot Robyn.

Our Form 10-Q filed this afternoon.

And in our other SEC filings today's discussion will also include non-GAAP financial metrics reconciliations to the GAAP results. We consider most comparable can be found in the earnings presentation that let me turn it over to Brad.

Thanks for the intro, Chris and thanks to everyone for joining US today, it's been nearly 10 years since Pedro and I first launched the waitlist for Robin Hood.

Back then nobody had heard it's fintech customers were paying seven to $10 every time they place to trade. It wanted to discount brokerages and people were generally skeptical about using their smartphones for serious financial matters.

Investors were also sceptical about robinhood prospects as a business debuted the idea of us entering a highly regulated market with large entrenched competitors as a fool's errand.

Even if we weren't.

Succeed in bringing our product to market what anyone want it.

The conventional wisdom at the time was that an individual stock investing was dead and that all anyone needed was index funds.

We spoke to nearly 100 investors before we closed our initial seed round at a $10 million valuation.

Almost 10 years later, we're serving over 23 million customers in the U S are surviving competitors have been forced to adopt our business model and even to adapt their user interfaces to be similar to ours and robinhood is no longer just the trading app, we've been rapidly evolving into a broad financial services platform.

Serving multiple financial needs, including spending savings and retirement.

Our ambition and the opportunity ahead of US has expanded greatly and so it still feels like we are at the beginning of our journey.

Still number two in retail trading market share in the U S.

We're at the very early stages of expanding beyond trading with just over 1 billion of retirement assets on our platform out of the over 12 trillion U S IAA market.

We are also just now beginning to take our first steps to serve customers outside the U S, where we believe the need and opportunity for innovation in financial services is even greater than it is domestically.

As we continue to execute on our strategy. We believe we can grow into one of the largest and most profitable financial companies in the world.

I am excited to talk to you about our progress, but first let's review, our Q3 high level business and financial results.

It goes without saying, but the macro environment of the past few years has been challenging for investors GOP.

<unk> political tensions are continuing to increase interest rates are at 30 year highs and household savings are being depleted at a rapid clip.

I want to explain the three things I look at a company level to ensure robinhood emerges from this challenging environment stronger than ever.

First financial health.

Heard me mentioned over the past year that I want to ensure robinhood is a sustainable business not just in bull markets, but in all market conditions.

Put in a lot of work to make this a reality we had our first quarter of GAAP profitability as a public company in Q2 and in Q3 total net revenues were up 29% from a year ago and by keeping our costs lean we more than doubled our adjusted EBITDA margin year over year. This is all while making big investments.

<unk> across product customer service and international expansion.

Second company culture, I believe very strongly that small groups of highly motivated and talented people can out execute incumbents with over 10 X the head count and resources.

I believe we have the highest concentration of talent in the history of the company and over the past year, we have turned the crank even more on ensuring we are hiring retaining and motivating the highest caliber people across all of our positions.

Third product velocity.

We use a number of metrics to track this and right now by several key metrics our product velocity as the highest in our recorded history, we move fast and we've been simultaneously improving our service quality.

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 customers success in this part of our strategy means that Robin what becomes the most important financial relationship for a large portion of our customers. This will lead to a healthier and more diversified business and you should track our progress here by gold subscribers in net deposits.

Robinhood gold continues to be our number one focus and deepening relationships with our customers over the past year as the environment of vault and customers were looking for new ways to save and invest we put a lot more value in gold by adding a four 9% Y on uninvested cash and a 3% match on IRA contributions.

As a result subscriptions are now over $1 3 million and growth is accelerating as we added 100000 in Q3 alone and 240000 over the past year today, 6% of robinhood customers or gold subscribers and new customers are joining gold at more than double that rate gold customers have.

Tens of thousands of dollars in average assets under custody up more than 60% year over year, and they've opened iras with us at seven times the rate of non gold customers.

As we look ahead, we want the majority of our customers to be gold subscribers and we're taking a number of steps to make that a reality.

<unk> is one of them right now after acquiring X. One in July our team has been hard at work, creating an awesome credit card and we've got something special plan for gold customers Youll hear more about this early next year.

Now, let's discuss active traders.

We are laser focused on being the number one platform for active traders and we track our progress here by market share.

Our focus has been on systematically removing any limitation that would lead an active trader to consider using another platform with a particular emphasis on pricing speed and app usability in the past quarter, we streamlined our equities trading flow introduced options chain customization, and an option P&L simulator and more than doubled.

The number of stocks and Etfs available to trade 24, five on Robinhood 24 hour market for.

For our crypto customers, we've rolled out some changes to the user interface on mobile so that customers can clearly see the spreads that we offer on our crypto transactions. This makes it easier for customers to see their all in cost of execution compare it against other platforms and see how great of a deal robinhood is giving them.

As we deliver for our active traders, we continue to see our market share of retail trading grow in Q3, both our equities and options market share increase from Q2 and year over year.

Let me now talk about futures, we're getting closer to unveiling our offering there and we have been hard at work building. What we believe is the best design futures product, particularly on mobile competitors generate hundreds of millions of annual revenue from futures trading. So as we continue to execute we believe we have a real opportunity to.

Spanned the market take market share and build a nine figure revenue business overtime.

The third part of our 2023 roadmap is exploring new growth opportunities here, we have been laser focused on international expansion in the U S alone. We built a business with 23 million customers that serves nearly 10% of American adults, but there are billions more potential customers across the globe.

And as we serve them, we believe our business can evolve into one where the majority of our customer base is outside the U S. In the years to come.

Our approach has been to build the capabilities for international expansion organically. This allows us to scale in a capital efficient manner, while easily sharing our capabilities across multiple Geos for example, with the launch of Robinhood 24 hour market.

We became the first U S brokered off around the clock trading of individual stocks are customers in the UK will benefit from this and other platform enhancements as 24 hour market will be available in the U K at launch.

Two major things are happening in the coming weeks first we'll launch brokerage operations in the UK, we look forward to eliminating commissions in that market just like we did in the U S. Also in the coming weeks, we will launch crypto trading in the EU crypto benefits from a regulatory relatively clear regulatory framework in the EU.

And we're excited to bring our capabilities across the pond to better serve that market.

As I reflect on all that robinhood has in front of us I'm energized by our long term potential to innovate for our customers grow assets gain market share and continue to disrupt our industry. We're really excited about the roadmap ahead and there's so much to do with that I will turn the call over to Jason.

Thanks glad it's good to speak with everyone today in the third quarter, we stayed focused on serving customers growing our business and driving long term shareholder value. Our team continues to execute on our product roadmap, while growing revenues and delivering strong operating leverage in the business.

And a very different macro environment than two years ago. We believe we have a good shot of delivering record annual revenue in 2023.

And our adjusted EBITDA. This year is on track to be roughly three times our prior record.

We're also excited to see momentum continuing to build with growing market share of retail trading and increased customer adoption of our new products.

Taking a look at new products Robinhood retirement has over $1 billion of AUC and our new 3% contribution match for gold members is making us really excited for IRA season.

Securities lending enrolled nearly 400000 customers in Q3, bringing our total to nearly 2 million customers with over $10 billion of balances.

Robinhood gold grew by 100000 subscribers in Q3 alone, bringing the total to $1 3 million subscribers roughly double the pace, we've seen in the past few quarters and the biggest increase in over two years and we're also pleased to see over 10% of withdrawals are done through instant so we love that.

Our revenue drivers keep moving higher.

Let's look at our business results in the third quarter net deposits remained strong in what is typically a seasonally slow quarter. They were $4 billion in Q3, which translates to an 18% annual growth rate and over the past 12 months. They grew at 27% AUC.

<unk> ended the quarter at 87 billion up 34% from a year ago.

While equity markets were challenging in Q3, we're optimistic that the continued strength of customer net deposits and long term market appreciation will be a powerful tailwind to our business over time.

Now, let's turn to our financial results as a reminder, last quarter, we reached GAAP profitability for the first time as a public company generating $25 million of net income or <unk> <unk> of EPS.

This quarter, we recorded a $104 million regulatory accrual for historical matters as we previously disclosed this led to Q3 results moving back to a loss with net income of negative $85 million or a loss of <unk> <unk> per share.

Q3 net income prior to this accrual would have been positive $19 million or <unk> <unk> per share, which would have been similar to last quarter.

In Q3, we generated adjusted EBITDA margins of 29% up 16 points from a year ago. Adjusted EBITDA was $137 million in Q3 and $485 million over the past year, which is nearly a $900 million improvement compared to our first year as a public company.

So the natural question is how do we drive profitability, even higher over time.

We're focused on two things first growing revenues, we want to serve more of our customers' financial needs become number one in active trading and expand internationally.

Second we want to stay lean as we scale our cost structure is roughly 90% fixed which supports high incremental margins and operating leverage and we will continue to push on our fixed costs wherever we can.

So we think we have a good path to higher levels of profitability over time, and we look forward to sharing our progress as we go.

Now, let's review Q3 revenues total net revenues for $467 million up 29% from a year ago.

Revenues were down 4% from Q2 as growth in net interest revenue was offset by lower transaction revenues and seasonally lower proxy revenues.

Transaction based revenues in Q3 were $185 million down 4% sequentially, primarily due to lower crypto volumes.

Moving to net interest revenues they were $251 million in Q3 up 7% sequentially. The increase was driven by higher interest, earning assets and short term interest rates, partially offset by lower securities lending.

Looking ahead, we are watching a couple of areas that so far in Q4 are in the lower part of their cyclical ranges.

Specifically Q4 to date securities lending activity is well below the third quarter average. Additionally, Q3 net buying was the highest level we've seen in over a year, which drove free credit balances lower in the third quarter.

So far in Q4 net buying has moderated so free credit balances have increased by a few hundred million dollars.

But if the current levels of securities lending and free credit balances continue we anticipate Q4 net interest revenue will be roughly $20 million lower than Q3 levels.

Looking beyond Q4, we have a much more constructive outlook for net interest revenue as we continue to attract customer cash and net deposits and roll customers in securities lending and prepare to grow our credit card business.

Moving on to other revenues they declined sequentially to $31 million in Q3 as seasonally lower proxy revenues were partially offset by growth in gold subscriptions and Sherwood media advertising revenue.

I also want to share some additional color on what we saw in October we added another 30000 funded accounts and customers contributed another $1 billion of net deposits to robinhood. Additionally.

Additionally October trading volumes picked up from September.

Relative to Q3 monthly averages October options and crypto were roughly in line and equities were about 10% below.

I also wanted to note that we often see lower trading volumes in November and December around the holidays.

Looking at expenses, we continue to make significant progress investing for long term growth, while driving efficiency by lowering our full year costs from 2022 levels.

Starting with adjusted Opex, which reflects total operating expenses less SBC and the regulatory accrual it was $353 million in Q3 below our prior outlook range. This brings our year to date total to 106 billion or 76% of revenues.

As we invest for the long term and scale our business over time, we are focused on leveraging our highly fixed cost base to drive adjusted Opex lower as a percentage of revenue.

Reflecting on our progress year to date, we feel good about our expense discipline, while continuing to invest for the long term.

So in Q4, while we plan to keep driving efficiency across our business, we plan to make some targeted growth investments in marketing and product launches, including for the UK futures in credit card. We also anticipate some short term elevated legal expenses related to the historical regulatory matters I mentioned earlier.

Given this we're planning for Q4 adjusted Opex in the range of $375 million to $395 million, which slightly lowered the midpoint of our full year outlook and brings our 2023 adjusted Opex range to $1 435 to $1 $4 $5 5 billion.

This full year outlook has us on track to save around $75 million from our 2022 level.

Turning to share based compensation it was $83 million in Q3 below our prior outlook range SBC as a percentage of revenue was 18% in Q3 down from 30% a year ago, we're managing SBC cost closely so as we scale our business over the coming years, we're focused on driving at club.

10% of revenue.

Looking ahead to Q4, we're lowering our 2023 SPC outlook again by an additional $50 million.

Our updated outlook for full year 2023, SBC as a range of $860 to $880 million, which implies a Q4 range of $70 million to $90 million just to put that in context. If we look at the midpoint of our Q4 range on an annualized basis, that's about $320 million, which represents an app.

<unk> savings of over $300 million versus 2022.

And looking at dilution prior to our Q3 share purchase diluted shares were up one 2% through the first three quarters well below our initial full year outlook of 4% or less.

Now, let's turn to capital management, we are focused on maintaining a strong balance sheet, while deploying capital into opportunities that drive growth and shareholder value.

Over the past year, we generated nearly $500 million of adjusted EBITDA and in Q3, we deployed over 700 million to purchase 55 million shares of our stock and to acquire X one we.

We still finished the quarter with nearly $5 5 billion of cash and investments.

And we know we still have a lot of cash on hand, but in this macro backdrop, we like the balance sheet strength and Optionality. It provides.

In closing I'm excited about the momentum we're building and believe we have a huge opportunity ahead of US. We believe we can deliver new capabilities and enhanced customer experience, while producing great financial outcomes for our shareholders with that Chris let's move to Q&A alright. Thank you Jason for the Q&A session will start by answering shareholder questions.

Say technologies. These are ranked by number of votes will pass over any questions that were already addressed on this call or in prior quarters. While also grouped together questions that share common theme after that we'll turn to live questions from our analysts so I'll kick it off with our first question from say.

Put two together here.

And these are for Jason Massie, our asks your stock price has been floating between 9% and $12 for over two years, what will it take to bring it back to the IPO price and Fung and asks with all these new incentives happening robinhood why as Robin had not been able to raise its stock price back to the IPO level.

Thanks for the questions. So first of all we hear you it feels like we've made a ton of progress.

And we just haven't seen it translate yet to a higher stock price on a macro level interest rates are up which generally isn't good for stock prices and it hasnt been good for Fintech companies, but we're staying focused on things that are in our control like growing our business and driving profits higher over the long term. We think this is the approach that.

We'll move our share price up and we appreciate your questions Alright. Thanks, Jason. The next question is for Vlad I'm going to put it together to hear as well. So brand C asks would it be possible to add a dividend information tab and Jeremy J asks we continue to ask for a dividend forecasting management tool.

Will that feature coming to fruition.

Yes. Thank you.

Always looking for ways to improve our customer experience. So thank you first the suggestions around dividends I actually reached out to the team and ask them to make sure that this is added to the roadmap so it'll it'll be done.

Thanks Glenn.

The next question is from William W. Who asks the biggest thing that seems to be driving your turned to profitability as the high interest rate on your cash pile what will be the plan to maintain profits when the fed reduces those rates Jason.

So one of the nice things about our business is that it is naturally hedged for changes in interest rates.

<unk> revenues and interest income tend to move in opposite directions. So we think we're pretty well positioned to perform financially regardless of the rate environment.

Seen this play out over the last few years in the lower rate environment trading revenues were strong.

But with rate with rates moving higher trading revenue abated, some but interest income has picked up.

So at the same time, we're continuing to invest to grow our business through the cycle. So for higher rate environments, We've launched things like gold high yield as well as fully paid stock lending and for when higher trading environments come along it's great to see that our market share is up in equities and options as we continue to invest in our platform.

So overall, we feel really good about our position regardless of what interest rates do.

Okay. Thanks, Jason the next question's for glad and is from Malcolm D, who asks what will Robin Hood due to grow market share and expand operations.

Yes, happy happy to answer that so to start with our market share has been growing if we look at equities and options market share is up year over year and also sequentially for the past three quarters in a row and as we look at opportunities to grow even faster right now we can see where.

Winning in mobile.

And we think thats, great because clearly that's the fastest growing.

Part of of our industry I think the long term trend will continue to be more and more of the legacy brick and mortar based and web activity moving in the direction of mobile.

I think it's also important to note that a couple of our key competitors are going through merger related integrations right. Now so we've got TD ameritrade merging with Schwab and Etrade through Morgan Stanley.

And we've seen actually a lot of customers complaining about those integrations being forced to abandon some of the user interfaces that they'd like not really satisfied with.

With the mobile products that they're being asked to convert to and we've been seeing really really healthy and growing inflows from from both of those competitors and actually right now to accelerate that even further we're running a 1% match on a cats.

Not just into retirement accounts, but also into taxable accounts.

And so we're excited to share even more value with customers through that offer so.

Doubling down on our leadership in mobile and <unk>.

So we're continuing to expand and improve the product experience across the board.

Alright. Thank you. Brad next question is also for you Todd Z asked what does robinhood doing to convince long term investors to stay and grow with robinhood rather than transfer to other accounts when they reach a higher net worth.

Absolutely. Thank you for that question.

This is a key part of our strategy when I say deepening relationships with customers that really starts with making sure as they grow and as their needs evolve robinhood as the platform for them and can serve the wide variety of the financial needs that they have so our.

Biggest investment an area of focus here is around robinhood gold as you know.

Robinhood gold.

Launched a competitive rate on Uninvested cash, which allows customers to take advantage of the high rate environment, we're in and earn a high yields on cash even when they're not investing so right now thats four 9% <unk> and a nice bonus as you get up to two and a quarter million dollars in FTE.

Insurance protection, so it's actually superior to traditional.

Savings product that you might find it a bank.

The level of protection not to mention the yield.

We recently rolled out an unprecedented 3% retirement match for gold customers. So basically with the new IRA contribution limits slated to increased to 7000, that's an extra over $200 a year in bonus that you could be getting just by fully funding.

Your retirement account, which.

Which is a deal that you can't find anywhere else.

And so the.

The sort of confluence of this is once you become a robinhood customer.

Seeing more and more of those customers adopt gold once youre in gold.

And industry, leading value and user experience across a wide plethora of our products. So if you want to retire with US you can't get a better deal elsewhere. If you want to generate cash even if you're not investing at yield on the cash we offer that and we're continuing to add more and more features.

And in value in gold overtime. The upshot of that is gold balances have been increasing at a very healthy rate you've seen the progress we've made in gold subscribers.

Our churn and retention, particularly of our most valuable customers continues to improve.

And we think we're just getting started.

We're hard at work, making those better and better but I do think where we're actually seeing our strategy paying off and youre seeing demonstrated progress in increasing wallet share and it actually creating these relationships with customers that are significantly deeper.

Alright, Thank you Brad.

Next question is for Jason from Bradley, who asks what can Robin Hood do in order to become consistently profitable throughout each quarter.

It was great to achieve GAAP profit last quarter. It was our first time as a public company this quarter, but for the regulatory accrual we would have seen another quarter of GAAP profits.

But looking over the long run we're going to keep investing for growth, but we think we've got a good opportunity to invest for growth and grow revenues faster than costs, which should deliver nice leverage and profitability for the bottom line over time.

We are a tech company.

A vast majority up 90% of our costs are fixed costs and so we think we're well positioned to have high incremental margins as we grow the top line alright.

Alright.

Thank you Jason next question is for Vlad instead to partner.

NASA <unk> asks what are you going international and Thomas BS when will robinhood come to Europe.

Great questions the answer to both of those is basically now.

I am excited to say, we're getting really close to launching our brokerage in the UK, we should be live in the coming weeks I'll actually be there knocking on doors in the U K, maybe not literally but with the team for the launch and we also announced earlier.

In my opening prepared remarks that we will be offering crypto trading across the pond in the EU.

And thats going to come right on the heels of the UK brokerage launch so.

Are these launches are exciting they expand the addressable market of customers, we can serve with our financial products.

And.

They're really the first steps in what we see as a big opportunity for us growing the business internationally alright. Thank you Brad that concludes our shareholder questions from say technologies. We appreciate our shareholders taking time to ask these questions of Gladden, Jason and look forward to more next quarter now I will turn the call over to carbon that lead Q&A from our end.

Well. Thank you Chris NSA reminder, if you do have a question.

Simply press Star, one one and wait for your name to be announced.

Please standby for our first question is coming from Dan <unk> with Mizuho. Please proceed.

Hey, guys.

Great results, despite the difficult environment.

I have two questions two quick ones so maybe.

<unk> can you tell us.

What makes you gained so much share I know, it's a difficult environment, but you guys are gaining tremendous amount of share can you give us some color on what makes robinhood gain so much share and then I have a very quick follow up thanks.

Yeah. Thanks, Dan So, yes talking about our active trader offerings.

As I mentioned earlier, our goal is to be.

The number one platform.

For active traders.

We have been gaining share youre right that I pointed out year over year and for the last three quarters sequentially, we've seen our market share of options and equity transactions continue to increase and part of that is just.

Work that we've been doing systematically to improve the pain points that customers have for the product.

And.

More recently you can see we've continued to make improvements in options trading.

We added things that customers have been asking us for like the ability to customize auctions chains and better picture of their P&L.

We're looking at the experience for equities trading across the board.

And as.

As we sort of used it and dug deeply into it.

Notice that in the past, we had really optimize it toward more of a novice customer. So there was a lot of explanation for how to place different types of orders and.

For someone that was more active and more of an active trader.

We saw an opportunity to streamline it and reduce a lot of the unnecessary.

Necessary steps in the process.

And we've been doing that across the board not just in the in the trading flows but across the experience.

We're also turning our attention to giving more data.

Data to customers to make more informed decisions and youre going to start to see a lot of our work there rolling out in the coming weeks.

And <unk>.

I've got to mention also not just kind of table Stakes features we've got a ways to go to continue to close the gap, but we're leading in pricing.

Obviously for options most of our competitors are charging <unk> 65 per contract.

For typical trades in the hundreds of contracts that adds up to lots and lots of money that is coming out of their pockets.

And.

And our pricing advantage is strong and continuing to drive value for us and new innovative things that you can't find anywhere else really besides robinhood things like Robin a 24 hour market.

Our <unk> are also continuing to play there and all of this is adding up to the share gains that youre seeing and active trader NPS.

Across and that's net promoter score for those that aren't familiar.

Across options equities and crypto seen significant gains that are just continuing to accrue.

Terrific I do have a quick follow up I mean, it looks to me like Robin it could be a great place for traders to benefit from future Bitcoin ETF can you maybe talk a little bit about the opportunity if it exists.

Yes, I think that what youre seeing is bitcoin.

Continuing to become.

Attractive to more and more stakeholders as a mainstream asset for diversification. There has been a long held thesis that.

It's a good inflation hedge and obviously in a high inflation environment people are interested in ways to diversify their exposure.

Robinhood has been early to offer bitcoin in its native form.

And maybe you heard me mention in the prepared remarks that we've actually made a lot of improvements in the crypto user interface, we're showing customers the spread and theyre all in cost of execution and I think we've talked about.

Dan and the call before how robinhood has really really competitive pricing, but maybe it customers arent aware of that theres not a lot of transparency around it. So we're looking to solve that problem. We believe we have solved it and I think that.

More and more customers will see just how great of a deal they are getting.

Their ability to diversify their portfolio into crypto currencies. So.

We want to continue to be a leader there and.

I think of that.

Yes, we're excited about the progress we've made and there's a lot more to do.

We're excited as well thank you.

Thanks, Dan.

Thank you one moment for our next question.

And he's come from the line of Devin Ryan with JMP Securities. Please proceed.

Great. Thanks, so much have a lot hi, Jason how are you.

Hey, Devin.

Hey.

So looking forward to international launch.

A lot to be excited about there I just want to think about.

The opportunity or how you guys think about the opportunity either near or long term to build your own market, making capabilities to participate in more of the economics, and particularly as you scale the offering I suspect that could be an opportunity, but just wanted to get some thoughts there and then if that's not something that would make sense, just how youre thinking about the unit economics internationally.

Appreciating that trading is just going to be one part of the longer term game plan of making our relationship with customers. Thanks.

Yes, and you are referring to international specifically when Youre talking about market, making.

Right now I am yes.

Yes.

Yes look I think our focus right now, there's obviously lots and lots to do in our business as you pointed out there is all the stuff we're doing on the consumer side to win an active trading.

There is obviously ways to leverage that infrastructure that we're building to processor customers trades as a beta be offering and market, making is kind of in that category where.

Where we stand now is we're just laser focused on on consumer we want to make sure. We're the best.

Consumer offering out there, particularly internationally, where we're kind of new to market.

We want to make sure that as many of our resources as possible are pointed towards product market fit of the consumer offerings.

And there's lots of ways that we can monetize gold subscription you've heard.

But that product we have a lot of confidence in and it's just in the early stages. We think that it can be just as powerful if not more so in the U K securities lending and other interest based revenues.

So yes, we're not really focused on diversifying into b to b or market, making for the near term, but it's obviously something we're familiar with once we start getting to the point where that makes sense as a priority.

We'd certainly be open to considering.

Okay.

Thanks, a lot and then just a follow up here on X one in the kind of the credit card strategy. Appreciate the new net new interests disclosure around cards and so just wanted to maybe hear a little bit more about the scaling script strategy of excellence business across robinhood and kind of timeline that you guys are thinking and then also maybe on the other side, whether there's any consideration of growing a little bit slower just to get some.

Data around customer behavior, and also just thinking about potential for credit risk as well. Thanks.

Yes.

I'll be happy to field that.

I think we're going to build a great product we actually just.

Reviewed and approved the final designs for <unk>.

Whats going to become the Robin Hood credit card last week. So we've been making good progress. The team is super motivated to launch it and we do anticipate there will be a period of of learning of course ex one has had.

Some data from from their customer base, but we anticipate once we release this new product.

The scale of Robin its customer base is much bigger and so we'll want to make sure that we're rolling it out prudently.

But the thing that I'm most excited about is.

You guys seeing at customers see it I think we've we've spent a lot of time getting user experience.

And the design, just right and I think youre really going to love it.

Alright terrific I'll leave it there thanks.

Thank you.

One moment for our next question.

He comes from the line of Stephens Your back with Wolfe Research. Please proceed.

Hey, Good afternoon. This is Michael and I'm going to start this on for Stephen.

Maybe just one for Jason here on expense.

I had noted that you will continue to be disciplined on the expense front you highlighted largely fixed expense base as we think about expense beyond 'twenty three.

Do you see as a reasonable core expense growth rate to sustain that 20% growth organic growth that you've consistently delivered recently.

Sure.

Yeah. Thanks, Michael I appreciate the question.

We've made a ton of progress on operating costs, and running lean and driving for productivity and efficiency across our platform over the last year and a half and I'd say that we're not done we've got more work to do there.

It would be even more efficient and more lean and the way that we operate that said, we're going to continue to invest.

For growth, we see a lot of opportunity ahead of us than behind us in terms of the business, including international So we're going to place.

Some some smart investments in a number of areas.

I'm sure you can appreciate this is the time of year when the teams or.

Huddle due in 2020 for planning so.

Early for me to comment specifically on that.

The growth rate, we expect to see an opex next year, but you should expect that over a longer horizon, our intention is to.

Grow revenue faster than Opex, and we think that there's even while making investments there is opportunity for us to be lean and the way that we manage our costs.

Great Great. Thanks, and then my for my follow up I, just wanted to touch on crypto.

Again here, we've seen some stronger performance and bitcoin and Ethereum for example.

But the volume trends have remained pretty subdued both industry wide and that robinhood, but can you speak to what's driving that divergence there and what do you think needs to happen for activity to pick back up in <unk>.

Thank you.

Yeah.

It's hard for me to speculate on.

Activity predictions in the broader crypto currency market I can tell you what we're focused on.

We're focused on using this as an opportunity to build our capabilities build the platform.

You've heard me talk in this call about how we want to make sure customers who are using robinhood for crypto know that theyre getting terrific pricing.

So we've continued to make progress there.

We are improving the <unk>.

Customer experience and the team is hard at work.

A launching in the EU, which will expand the addressable market of customers that we serve.

By hundreds of millions. So we're excited about that we're going to continue to innovate and improve the offering in this space I think there's lots of.

Lots of promising signs lots of people are spending time building the industry.

We're going to continue to be a leader there.

The one thing that I'd add is I think it would be helpful to.

To continue to get some regulatory clarity in the various markets that we're going to be operating in and that will allow us to innovate even faster.

Thank you for taking my questions.

Thank you one moment for our next question. Please.

Is from the line of Michael Cyprus with Morgan Stanley. Please proceed.

And there Mike.

Mike Please check your mute button please.

Yeah.

Alright, please rejoin us in the call me feature.

One moment for our next question.

It comes from the line of John Todaro with Needham. Please proceed.

Great. Thanks for taking my question glad you mentioned earlier that the EU at a clearer regulatory framework around crypto in the U S.

I'm just trying to understand in that context, what kind of.

Products or services that you can.

Tangibly point to there would you envision kind of more assets for trading in the EU and the U S. Just anything that we can kind of tangibly look too.

I really don't want to get ahead of the launch that's coming in a couple of weeks and tell you what the value props are going to be.

But yes in general we do expect given the clarity to be able to offer.

A different set of assets and capabilities in Europe as in the U S.

Okay. Thanks for that and then I guess just quickly if I can add another one on <unk>.

Taking the other side of that looking at the U S market.

You guys recently do you listen some of the crypto assets, what would give you comfort ability to re list.

Is it some of the ongoing suits made with coinbase, they need to get resolved in any clarity there.

Yes.

I think that yes, it's hard hard to say, what specifically were waiting for to give us comfort.

That.

Yes rules.

All right.

Sure.

Rulemaking.

Court case data that that all helps.

And of course.

We will continue to push for regulatory clarity because I think it would be ashamed for the innovation that we've been seeing in crypto to be co opted overseas I think it's very very important for the U S.

We remain a leader in every new technology in the industry that we possibly can.

Yes, I agree with that thank you I appreciate it.

Thank you.

One moment for our next question please.

Okay.

And it is from the line of Ken Worthington with Jpmorgan. Please proceed.

Hi, good evening and thanks for taking the question.

One of the footnotes in the release today talked about <unk>.

It's in and out and you mentioned getting inflows from former Ameritrade and E trade customers.

Love you to compare and contrast.

Eight cats to robinhood or coming from generally and where a cat's going out of the firm are generally going to.

And then you mentioned the 1% match when did that go into effect and then maybe lastly, what's sort of a cat activity are you seeing from firms that are more traditionally known for active trading.

Yeah.

As I as I mentioned earlier in the call we have been seeing elevated cats.

From the firms that are going through.

Integrations.

I mean, the active trading firms.

TD Ameritrade has been very strong with active traders and we've been seeing really healthy and growing inflows there.

The 1% match as you probably know that started out being a retirement offering we have expanded it to eight cats.

In taxable accounts.

And I think Thats currently in the process of rolling out and being communicated to customers. So it's pretty new but what we're seeing there has been really really good I think that just gives customers an added incentive the ones that were already thinking about it and using robinhood to consolidate their assets here, we've been we've been really happy.

The trends there.

In terms of the more active trader locations.

The ins and outs are actually pretty modest overall, so nothing really to call out there.

Okay and then so.

<unk>.

You've got a catch going out as well are they going to the same firms where youre getting assets coming in or is it a is it a different sort of set of firms where.

Clients are.

Heading out towards.

Yes, it's really it's really pretty broad based across inflows and outflows and common firm names as you would expect.

One thing we like is the trends are improving for us as we continue to improve user experience.

Great. Thank you very much.

Thanks, Kevin.

Thank you and we have time for one more question. Please.

Okay.

And he is from the line of Benjamin <unk> from Barclays. Please proceed.

Hey, This is Chris O'brien on for Ben.

Wanted to ask you about the options take rate it looks like it came down four basis points or so quarter over quarter.

Is there anything you can share regarding the drivers here.

What's driving the change in the take rate.

Yes.

So first of all the take rate was 41.

This.

This quarter, there's two primary things that go into the take rate that we realized on option contracts what.

What I'd point to its volatility and then its also mix of contracts specifically.

Seeing increasing mix as we have for some time now of spy contracts.

Over individual named contracts and that has been.

A headwind for us on the take rate.

Okay very helpful and I also just wanted to follow up on the international expansion.

When we think about the launch of the UK product.

<unk> products will be available on day, one how long of a ramp will it take to kind of fully get capabilities up to something like we might see in the U S.

Yes, I'll field that one so I didn't mentioned that equities trading in particular 24 hour market will be available at launch in terms of the other value props again would rather not run ahead of the announcement like well, we'll find out very soon.

Soon.

The benefits of doing our international expansion organically is we can leverage the same platform. That's why Robin a 24 hour market is available at launch it's all on the same platform. So there's really no technical limitation to making our services available anywhere that we.

We operate it's all just a matter of licensure and making sure that we have the appropriate licenses for all the different products, we offer and I think youre really going to start to see the organic strategy.

Paying dividends as we continue to expand across multiple jurisdictions.

We add things here in the U S.

We add we connect to different market centers overseas Youll see that the.

The value accrue both to our U S customers and the customers in new jurisdictions.

And Chris one more follow up on the the options take rate.

We've seen that.

That mix continue into October and actually accelerate just a little bit and the take rate moved to 39 a contract in October we'll.

See how the rest of the quarter plays out but thought I'd highlight that for you.

Awesome. Thanks, so much I appreciate it.

Yes.

Excellent. Thank you one moment please for one more question.

This is from the line of Michael Cyprus. Please proceed from Morgan Stanley.

Oh, Hey, thanks for taking the question having some.

Technical difficulties with the phone before Im not sure. If you answered. This question just around index options. I think you had mentioned previously that was coming in the first half of 'twenty. Four just wondering if you had a more specific update there that you could share and just more broadly on that I was hoping you could maybe share your thoughts around the opportunity set how you see that playing out with index options. Thank you.

Yes, I mean.

One of the things that we're focused on on our path to number one being number one in active trader market share is systematically going through all of the product gaps, making sure that if customers want a particular asset.

We make that available.

This includes index options things like shorting multiple account types like join accounts, there's just a long list of things that we're prioritizing and building.

As for index options in particular.

Now thats slated for about mid year 2024.

Got it Okay and then just a follow up question if I could just on its face.

We're thinking about the opportunity set there for providing customers with financial advice.

Do you think about where there is sort of space in the marketplace. What are the pain points that you might look to address and how do you think about what the right level of pricing should be.

Yes.

Important questions.

What I can tell you is that robinhood has historically been.

Mike.

A company that values, the individual and their economy and making decisions in controlling their finances I think.

As a self directed platform one of the things we pride ourselves in is.

Putting people in the driver's seat and in control over over their finances, and I think as we think about advisory.

We definitely.

Definitely don't want to build another me too robo that just puts you into a basket of Etfs and does tax loss harvesting and and things like that we think theres, a real opportunity to give customers. The type of high end financial advice that.

You're the CEO of a company or a high net worth individual you could get.

By by paying a lot of money, except we want to offer that at.

At a really attractive price point, using modern technology and make that available to everyone.

So that's kind of the.

<unk> ethos behind the product and.

We'll definitely share more as we get closer to unveiling that.

Great. Thank you.

Thank you and this concludes the Q&A period, I will turn it back to black tennis for final remarks.

Yes. Thank you everyone very excited to have you listening to this call and we're only at the beginning of our journey. So much more to build so we're going to get back to work. Thank you.

Thank you all for joining you may now disconnect.

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Good day and thank you for standing by welcome to Robinhood third quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. After the presentation. There will be a question and answer session.

Ask a question simply press star one on your telephone you will hear music advising your hand. This race to withdraw your question Press Star One again and please be advised that today's conference is being recorded.

I'd now like to turn the call over to Chris cargo, Vice President of corporate ASP, DNA and Investor Relations.

Thank you Carmen and thank you to everyone for joining <unk> Q3 earnings call with US today, our CEO and co founder glad tenants and CFO, Jason Warnicke before getting started I wanted 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.

Good 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 Investor <unk> Dot Robyn.

Our Form 10-Q filed this afternoon and in our other SEC filings. Today's discussion will also include non-GAAP financial metrics reconciliations to the GAAP results. We consider most comparable can be found in the earnings presentation.

Let me turn it over to Brad.

Thanks for the intro, Chris and thanks to everyone for joining us today.

Nearly 10 years since <unk> first launched the waitlist for Robin Hood.

Back then nobody had heard it fintech customers were paying 7% to $10 every time they place to trade at one of the discount brokerages and people were generally skeptical about using their smartphones for serious financial matters investor.

Investors were also sceptical about robinhood prospects as a business.

Viewed the idea of us entering a highly regulated market with large entrenched competitors as a fool's errand.

Even if we were to succeed in bringing our product to market what anyone want it.

The conventional wisdom at the time was that an individual stock investing was dead and that all anyone needed was index funds.

We spoke to nearly 100 investors before we closed our initial seed round at a $10 million valuation.

Almost 10 years later, we're serving over 23 million customers in the U S are surviving competitors have been forced to adopt our business model.

And even to adapt their user interfaces to be similar to ours.

And Robin it is no longer just a trading app, we've been rapidly evolving into a broad financial services platform, serving multiple financial needs, including spending savings and retirement.

Our ambition and the opportunity ahead of US has expanded greatly.

So it still feels like we are at the beginning of our journey.

Still number two in retail trading market share in the U S.

We're at the very early stages of expanding beyond trading with just over 1 billion of retirement assets on our platform out of the over 12 trillion U S IRI market.

As we continue to execute on our strategy. We believe we can grow into one of the largest and most profitable financial companies in the world.

I am excited to talk to you about our progress, but first let's review, our Q3 high level business and financial results.

It goes without saying, but the macro environment of the past few years has been challenging for investors GOP.

Geopolitical tensions are continuing to increase interest rates are at 30 year highs and household savings are being depleted at a rapid clip.

I want to explain the three things I look at a company level to ensure robinhood emerges from this challenging environment stronger than ever.

First financial Health <unk>.

Heard me mentioned over the past year that I want to ensure robinhood is a sustainable business not just in bull markets, but in all market conditions.

<unk> across product customer service and international expansion.

Second the company culture, I believe very strongly that small groups of highly motivated and talented people can out execute incumbents with over 10 X the head count and resources.

Third product philosophy.

Robinhood gold continues to be our number one focus and deepening relationships with our customers over the past year as the environment evolves and customers were looking for new ways to save and invest we put a lot more value in gold by adding a four 9% Y on uninvested cash and a 3% match on IRA contributions.

Tens of thousands of dollars in average assets under custody up more than 60% year over year, and they've opened iras with us at seven times the rate of non gold customers.

As we look ahead, we want the majority of our customers to be gold subscribers and we're taking a number of steps to make that a reality <unk>.

Now, let's discuss active traders.

We are laser focused on being the number one platform for active traders and we track our progress here by market share.

The number of stocks and Etfs available to trade 25 on Robinhood 24 hour market.

As we deliver for our active traders, we continue to see our market share of retail trading grow in Q3, both our equities and options market share increase from Q2 and year over year.

Let me now talk about futures, we're getting closer to unveiling our offering there and we have been hard at work building. What we believe is the best designed futures product, particularly on mobile competitors generate hundreds of millions of annual revenue from futures trading. So as we continue to execute we believe we have a real opportunity to <unk>.

Spanned the market take market share and build a nine figure revenue business overtime.

The third part of our 2023 roadmap is exploring new growth opportunities here, we have been laser focused on international expansion in the U S alone, we built a business with 23 million customers that serves nearly 10% of American adults.

There are billions more potential customers across the globe and as we serve them. We believe our business can evolve into one where the majority of our customer base is outside the U S. In the years to come.

And we're excited to bring our capabilities across the pond to better serve that market.

As I reflect on all that robinhood has in front of us I'm energized by our long term potential to innovate for our customers grow assets gained market share and continue to disrupt our industry. We're really excited about the roadmap ahead and there's so much to do with that I will turn the call over to Jason.

And a very different macro environment than two years ago. We believe we have a good shot of delivering record annual revenue in 2023 and our adjusted.

<unk> EBITDA. This year is on track to be roughly three times our prior record we're also.

Excited to see momentum continuing to build with growing market share of retail trading and increased customer adoption of our new products.

Taking a look at new products Robinhood retirement has over $1 billion of AUC and our new 3% contribution match for gold members is making us really excited for IRA season.

Securities lending enrolled nearly 400000 customers in Q3.

Total to nearly 2 million customers with over $10 billion of balances.

Our revenue drivers keep moving higher.

87 billion up 34% from a year ago.

Now, let's turn to our financial results as a reminder, last quarter, we reached GAAP profitability for the first time as a public company generating $25 million of net income or <unk> <unk> of EPS.

Q3 net income prior to this accrual would have been positive $19 million or <unk> <unk> per share, which would have been similar to last quarter.

So the natural question is how do we drive profitability, even higher over time.

We're focused on two things first growing revenues, we want to serve more of our customers' financial needs become number one in active trading and expand internationally.

We want to stay lean as we scale our cost structure is roughly 90% fixed which supports high incremental margins and operating leverage and we will continue to push on our fixed costs wherever we can.

So we think we have a good path to higher levels of profitability over time, and we look forward to sharing our progress as we go.

Now, let's review Q3 revenues total net revenues were $467 million up 29% from a year ago revenues were down 4% from Q2 as growth in net interest revenue was offset by lower transaction revenues and seasonally lower proxy revenues.

Transaction based revenues in Q3 were $185 million down 4% sequentially, primarily due to lower crypto volumes.

Looking ahead, we are watching a couple of areas that so far in Q4 are in the lower part of their cyclical ranges specifically.