Q3 2024 Robinhood Markets Inc Earnings Call

October 30, 2024

<unk> $34 billion year to date above our 2020 record of 31 billion and also takes our customer assets under custody to a record high of 152 billion.

Second Q.

Q3 options contracts were up 47% year over year to a new record as we keep winning with active traders. This brings our year to date totaled $1 2 billion contracts edging out our full year high from 2021 and third.

Q3 was another strong financial quarter with our second highest revenues ever revenues grew 36% year over year adjusted EBITDA increased 96% from a year ago looking year to date revenues of nearly $2 billion of already broken last year's record of $1 9 billion and GAAP diluted EPS of <unk> 55.

Is multiples of any prior year.

It's energizing to see our business performing well like this but we're even more excited about our product roadmap.

A key part of increasing wallet share with customers is growing robinhood gold subscriptions, which hit an all time high of $2 2 million in Q3, and one of the most exciting new parts of the gold program is a robinhood gold card.

When I've talked to robinhood customers in recent months the gold card almost always comes up if someone has it they love it if they don't have it they want to know when theyre going to get it and I hear you were working hard to increase the rollout, but we're also being patient and carefully studying customer behavior as we grow so that we manage credit risk to profitably scale over.

And margin balances building to a two year high.

Speaker Change: Lastly, other revenues grew by 42% as we added over 850000 gold subscribers in the past year to reach a record $2 2 million subscribers and record annualized recurring gold subscription revenue of over $110 million.

I would also note that our Q3 revenues include the impact of Contra revenues from amortizing matches on customer deposits and transfers Q3, Contra revenues were $27 million up $14 million sequentially.

Lastly, driven by the 1% gold deposit boost we expect contra revenues to grow sequentially by a similar amount in Q4, and then grow much slower in 2025 to.

To provide some more context customers love the matches, we provide on asset transfers and IRA contributions and we're seeing great payback periods on these matches.

At the same time, the 1% gold deposit boost has not driven as much incremental customer activity as our other promotions. So we've decided to wind it down in November to focus on offers that resonate more with customers.

As an example, we doubled down recently for our Hood week promotion by offering a range of matches on asset transfers and in just two weeks. This led to $2 billion of transfers in from brokerage incumbents that averaged over $130000 per customer.

Stepping back when we reflect on our revenue so far this year. It feels good that our last three quarters are the three highest in company history.

Two 5% year over year to a three year high and this is even before the full rollout of index options futures and Robin Hood legend.

In closing we had another strong quarter in Q3, and you should know our team continues to work incredibly hard to deliver even more value to our customers. The roadmap is full there is so much to do and we're excited to share a lot more with you at our Investor day in December now lets move to questions.

Speaker Change: Thank you Brad for the Q&A session will start by answering the top tier shareholder questions from say technologies ranked by number of boats.

Cost of or questions that we have already addressed on this call or in prior quarters and prefer to go to the questions that share to come in theme.

After let's say questions, we'll turn to live questions from our analysts so I'll kick it off with our first question from say, which is for Vlad Vlad when will the robinhood gold card be available to all users yes.

Thank you for the question I think the first thing I want to say is we've really been humbled by the demand we've seen so far for the gold credit card. The waitlist is close to $2 million and so far we've rolled it out to about 100000 customers and I think if you compare this to.

Other successful credit card programs that are new have scaled.

It's a pretty quick ramp but of course, we also recognize that small compared to.

The waitlist, the waitlist, frankly exceeded our expectations and we're working as hard as we can to get it out as quickly as we can but it's also important for us to make sure. We don't incur significant near term losses. So we have to understand the customer behavior and the economics, because the credit card.

<unk> can get quite big and also if we're not careful that could mean losses. So.

To do that.

Our approach is that if you are an active trader.

Using robinhood should put you in a position you should really associate Robin it would be with being at the forefront of technology and innovation and trading and I think offering products like these which you can't really find at.

At many of our competitors is the best way to do that so feedback is really really good you can see on social that it's resonating with customers very very clearly.

But we rolled out to 100% right before the call started so I think it's a little bit early to tell.

To give to give you too much.

Other than yesterday, we did about $10 million contract that was pre full rollout.

Speaker Change: And we've done even more than that already today.

Okay.

Thank you your next week, we can take the next one.

Yes.

Hey.

Okay.

Your next question comes from the line of Patrick Morley with Piper Sandler.

Please go ahead.

Yes. Good afternoon, thanks for taking the question.

Had one on index options and futures trading now that you've announced the pricing on those products I was hoping you could help us better understand the economics, there I know index options carry relatively high exchange fees or what are your margins look like in offering those contracts how much do you expect to make per contract.

And then maybe as part of that your expectation for how much volume is going to come from gold versus non gold members.

And then if I could add a.

A follow on modeling question it looks like your equity fee capture declined by about 20% sequentially.

So any color there on what drove that would be helpful. Thanks.

Sure Patrick I'll go ahead and take both of those this is Jason.

So.

Kind of just going index options first the <unk>.

About the tail winds that come from from falling rates and we'll just have to see how it plays out from here.

Yes.

Speaker Change: Your next question comes from the line of Benjamin British with Barclays. Please go ahead.

Speaker Change: You might be on mute.

Jim.

Hi, sorry. This is Ben can you hear me.

Yes, we can hear you now hey, sorry about that I had the phone stuck on mute.

Well. Thank you for taking the question I was wondering if you could talk kind of generally about your path to two product kind of innovation and launch it looks like with the active trader offering the credit card, you're being very kind of cautious and measured in terms of the rollout how should we read that into future product development. I think we're all expecting a lot to be announced at the December Investor day, you've talked about.

At our ambitions in crypto global kind of brokerage offerings. So yeah could you talk about sort of your approach to like product velocity and how we should think about that.

The pace of rollout for current and future product launches. Thank you.

Yeah, I think that it really depends on the product we're talking about.

For example.

Just this week with presidential election market, we started the rollout on Monday and completed it on Wednesday, which is very.

Very quick, particularly for our new product credit card is a little bit of a different animal I mean, nothing technological is preventing us from rolling that out. It's just really looking at other successful credit card programs in the past.

Speaker Change: And making sure that you know with a waitlist of 2 million customers that business could get quite big but if we don't manage it carefully Mike.

Speaker Change: Losses could get big as well so to avoid that we want to make sure we prudently scale it and so far we've onboard at about 100000 customers, who love it and early signs are good and that's roughly in line with how fast our other successful card programs have scaled in.

Kind of like the first year of operations. So so that one it's just us making sure that we're understanding customer behavior.

Understanding credit since that's a new business for us.

Speaker Change: And we're feeling good.

But yeah, we recognize the demand is is extreme so where we're working to onboard people as quickly as possible and we expect to get to multiples of our current level over the next year.

Speaker Change: Okay.

Your next question comes from the line of John <unk> with Needham and company. Please go ahead.

Hey, Vlad Jason Thanks for taking the question.

I guess, just going back to the futures index offering any expenses down the road that we should be thinking about increasing on the back of that I don't recall, if we got to kind of that margin of where it should shake out and then also just what drove the crypto read a tired of 48 basis points.

Yeah I'll go ahead and take both of those.

So first on the on the crypto rebates, we've been experimenting.

Cement team for some time on crypto rebates and we've been seeing the rebate rate come up you know, we always want to have great prices for customers, but also balance the return that we generate for shareholders on on that activity.

Speaker Change: And so you know we started the year about 35 basis points and you've seen it.

Speaker Change: Move up including in October where were running at 48.

Basis points in terms of futures and index options.

Speaker Change: Those products really benefit from the broader competitive technology.

Technology structure that we have at the company.

We have a.

Roughly 90% fixed cost base and relatively low variable costs and futures and index options benefit that from that as well.

Which leads to really high incremental margins as we as we grow those businesses.

Speaker Change: Okay.

Your next question comes from the line of Stephen Ju up withdrawal for thank you. Please go ahead.

Hi, good evening.

Hey, Stephen Davidson, Istar, Hey, I want to start with a question on actually a chart that yours included in a recent presentation deck, just showing the strong relationship between our revenues and AUC.

Speaker Change: On the <unk>.

Speaker Change: It's been a persistent trend over the last few quarters I mean in this particular quarter, we did see some decoupling.

Amid some of the rate cuts and subdued trading activity and was just hoping you could speak to your confidence level at that relationship should ultimately still hold even amid the impact of further rate cuts from the fed.

Yes, I feel I feel really good about that relationship Steven I mean, one way to think about it as just bridging revenue from Q2 to Q3, there's really two things that distinguish our second quarter and our third quarter. The first is in the second quarter, we have seasonally high proxy revenue that was about $30 million and you saw that.

Reduction in Q3, as we move past that seasonal quarter.

Speaker Change: The second.

Bridge items from Q2 to Q3 is the contra revenues on the match promotions and.

In the in the quarter, we saw a step up to $27 million that was an increase of about $14 million in contra revenues.

Versus Keith Q2, and I think that's showing up in the relationship that you're drawing to AUC importantly.

Speaker Change: Most of the incremental $14 million related to the 1% boost on gold deposits and that's something that we're winding down in November. So as we look forward to Q4, we expect Q4 to step up Contra revenues in a similar amount that we saw from Q2 to Q3.

But then subside and grow at a slower rate.

Zooming out and feel really good longer term.

Speaker Change: About the core business.

Speaker Change: Okay.

Your next question comes from the line of understanding <unk> Barclays. Please go ahead.

Speaker Change: Hi, Thanks for taking my question just wondering can you discuss the deposit trends for some of the recent promotional offers and then what's your strategy for.

For deposit bonuses going forwards. Thank you.

Speaker Change: Yeah, We love the we love the matches on deposits, we've seen customers really respond to it.

From a finance perspective, we track the behavior of the.

Cohorts and dollars that come in and we've seen like for example, the 2023 match promotions have already paid off.

Speaker Change: The the payback periods are around one year four 1% in kind of in the two to three year zone trending more towards three years on the retirement matches that of 3%. So we feel really really good about that.

Speaker Change: Our third straight quarter of $10 billion plus in net deposits from our.

Speaker Change: From our customers and continuing with a longer term trend of 20% plus growth.

The HUD week promotions that we did brought in.

$2 billion. So that was a two week promotion and really really strong response from from customers and in addition to the relatively quick payback periods. We just love the potential for compounding effects for the business over time.

Speaker Change: Yes.

Speaker Change: Your last question comes from the line of Ken Worthington with Jpmorgan. Please go ahead.

Hi, This is Matt <unk> on for Andre Ken Thanks for taking our question.

Speaker Change: You discussed it a bit already but we wanted to dig a little more into the strategy around the election related event contracts.

Speaker Change: So could you walk us through your ultimate decision to lift these event contracts, how they fit into the product roadmap and ultimately as Robin had considering getting bigger entities more betting type products. Thank you.

Yeah, I'd say overall as a philosophy, we want to make all product categories available for customers over time, particularly for active traders.

We want robinhood to be associated with.

Sort of being at the frontier of innovation and technology and financial services. So if you look specifically at these event contracts the regulated swaps markets that really serve as legitimate hedging instruments for large institutions and we believe that if any tool or any.

Speaker Change: Instrument is available for institutions then.

Speaker Change: We have to make it available for for retail as well.

I think a nice other secondary impact is it provides people with a reliable data source about where our predictions were people predict the market will land.

Speaker Change: Yes.

This concludes our Q&A session I will now turn the call back over to <unk>, Chairman and CEO for closing remarks.

Yeah. Thank you. Thank you to everyone for listening and to our institutional and retail analysts for continuing to engage and really a special. Thank you to all the folks on social media who've been posting content and streaming using Robin Hood legend and sharing feedback we really appreciate it.

Speaker Change: Okay.

Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Please wait the conference will begin shortly.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Thank you for standing by my name is Catherine and I will be your conference operator today at this time I would like to welcome everyone to the Robin Hood Quad or changed any from let's say four earnings conference call.

All lines have been placed on mute to prevent any background nice after the Speakers' remarks, there will be a question answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star One again, we ask that you. Please limit your questions.

The one Andrea entered the queue for any additional questions.

You may have thank you.

I'll now like to turn the call overdue, Chris Cagle, Vice President of corporate S. P. A and Investor Relations. Please go ahead.

Thank you Catherine and thank you to everyone for joining Robinhood Q3 earnings call with US today, our CEO and co founder blood 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.

Speaker Change: Legally required.

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, and our SEC filings all of which can be found at investors Robinhood Dot com todays discussion will also include non-GAAP financial measures.

Speaker Change: Patients to the GAAP measures, we consider most comparable can be found in the earnings presentation with that let me turn it over to Bud.

Thanks, Chris Hi, everyone let.

Let me start by reiterating robinhood three areas of focus number one winning the active trader market number two increasing wallet share with our customers and number three expanding internationally in Q3, we continued to make progress on all of these fronts. In fact, our results. After the first three quarters of the year.

Speaker Change: I've already broken through a number of full year records.

And we have another quarter in front of us to take these results even higher just to share a few examples first Q3 net deposits were $10 billion or more for the third straight quarter. As we continue to increase wallet share. This brings us to 34 billion year to date above our 2020 record of 31 billion.

And also it takes our customer assets under custody to a record high of 152 billion.

Speaker Change: Second.

Speaker Change: Q3 was another strong financial quarter with our second highest revenues ever revenues grew 36% year over year adjusted EBITDA increased 96% from a year ago looking year to date revenues of nearly 2 billion have already broken last year's record of $1 9 billion and GAAP diluted EPS of <unk> 55.

<unk> is multiples of any prior year.

It's energizing to see our business performing well like this but we're even more excited about our product roadmap.

A key part of increasing wallet share with customers is growing robinhood gold subscriptions, which hit an all time high of $2 2 million in Q3.

And one of the most exciting new parts of the gold program is a robinhood gold card when I've talked to robinhood customers in recent months the gold card almost always comes up if someone has it they love it if they don't have it they want to know when theyre going to get it and I hear you were working hard to increase the rollout, but we're also being paid.

<unk> and carefully studying customer behavior as we grow so that we manage credit risk to profitably scale over time.

While it's still early I wanted to share some emerging data from our 100000 gold card customers first customers loved the gold card App store ratings continue to be five out of five with over 10005 star reviews customers tell us they love the metal card the digital apps and of course, the 3% rewards.

Second the early customer behaviors in line with our expectations. It looks like the gold card is top of wallet for most customers and early data shows that we're retaining approximately 95% of gold card customers. Following their first transaction. We're also starting to see customer spending growth in loan balances revolve as expect.

Speaker Change: Good.

Speaker Change: Third.

Speaker Change: Gold card customers are also contributing meaningfully higher net deposits versus similar customers. It's great to see the early additional benefits to the platform.

All in all while it is still quite early we're further increasing confidence that we can scale the gold card significantly overtime.

Speaker Change: Now, let me turn it over to Jason to review, our financial results and then I'll offer some additional thoughts.

Thanks, Brad and thanks, everyone for joining us today in.

In Q3, we had another strong quarter growing revenues, 36% and driving 77% incremental adjusted EBITDA margins versus a year ago.

Q3 business results also set a number of new highs including assets under custody.

Speaker Change: Options contracts cash suite balances and retirement, AUC as well as well as multiyear highs for equity volumes and margin balances.

Speaker Change: And as we enter 2024 focused on driving another year of profitable growth.

We're excited that we've already broken records for full year revenue adjusted EBITDA and earnings per share.

Looking at the progress we made in Q3 versus a year ago assets under custody grew 76% to a record 152 billion net deposits were $10 billion plus for the third straight quarter and $39 billion over the past year. This translates to annualized net deposit growth rates of 29% in <unk>.

Q3, and 45% over the past year.

Speaker Change: Total net revenues grew 36% to $637 million adjusted EBITDA nearly doubled to $268 million adjusted EBITDA margins expanded by 13 points to 42%.

And net income grew to $150 million or <unk> 17 per share. This was reduced by <unk> for a regulatory accrual in the quarter.

We're pleased with these results, which mark our fourth straight quarter of GAAP profitability and ninth straight quarter positive adjusted EBITDA.

Speaker Change: Now, let's look more closely at Q3 revenues, which increased year over year across all three categories transaction based revenues grew 72% as we drove higher volumes and market share gains across all trading products. It was great to see option equity and crypto volumes up 40.

Speaker Change: 7%, 65% and over 100% from a year ago, respectively.

Net interest revenues increased 9% as we grew interest earning assets and securities lending activity improved this included customers growing their cash sweep balances, 80% year over year and margin balances building to a two year high.

Lastly, other revenues grew by 42% as we added over 850000 gold subscribers in the past year to reach a record $2 2 million subscribers and record annualized recurring gold subscription revenue of over $110 million.

Speaker Change: I would also note that our Q3 revenues include the impact of Contra revenues from amortizing matches on customer deposits and transfers Q3, Contra revenues were $27 million up $14 million sequentially, mostly driven by the 1% gold deposit boost.

Speaker Change: We expect contra revenues to grow sequentially by a similar amount in Q4, and then grow much slower in 2025.

To provide some more context customers love the matches, we provide on asset transfers in IRR contributions and we're seeing great payback periods on these matches at.

At the same time, the 1% gold deposit boost is not driven as much incremental customer activity as our other promotions.

We've decided to wind it down in November to focus on offers that resonate more with customers.

As an example, we doubled down recently for our HUD week promotion by offering a range of matches on asset transfers and in just two weeks. This led to $2 billion of transfers in from brokerage incumbents that averaged over $130000 per customer.

Speaker Change: Stepping back when we reflect on our revenue so far this year. It feels good that our last three quarters are the three highest in company history.

Turning to Q3 expenses, we had another good quarter of expense discipline combined adjusted Opex in SBC was $476 million in Q3 in the middle of our 24 outlook range on a quarterly basis.

Looking ahead to Q4, we're pleased that we're still on track for our full year outlook range of $1 85 to $1 95 billion of adjusted Opex and SPC, even while driving nearly 40% year over year revenue growth for the first three quarters of the year. We anticipate will likely finished near the top end of that range gives.

Our continued growth investments to finish the year strong.

Turning to capital management, we started our $1 billion share repurchase program in July we allocated $97 million to repurchase 5 million shares in Q3 and made good initial progress on our expected two to three year total timeline.

We love deploying capital like this a lowered our share count and positions us to increase EPS and free cash flow per share over time.

And when we look at last year's share repurchase plus the start of our new program, we've deployed over $700 million to repurchase approximately $60 million of our shares equivalent to about 7% of our current diluted count.

And we're continuing to repurchase shares daily in Q4.

Speaker Change: Before passing it back to flat I'd like to comment on the strong momentum we are seeing so far in October.

Net deposits are north of 4 billion and cash sweep balances are more than 25 billion as for trading equity notional volumes are the highest month in over three years.

Option contracts look to be one of the highest months ever.

And crypto notional volumes are over $5 billion on track to exceed the Q3 monthly average.

Speaker Change: I'd also highlight that our crypto rebates have increased to 48 basis points in October relative to our 44 basis point average in Q3, and 35 basis points at the start of the year.

So we're really excited about finishing the year strong.

Longer term, we're energized by the progress, we're making and believe we are well positioned to drive higher earnings and free cash flow per share overtime, driven by our 20% plus net deposit growth diversified business model and 90% fixed cost base.

Speaker Change: With that I'll turn the call back to flat.

Flat: Thanks, Jason.

Speaker Change: Now I want to highlight our progress on the first part of our strategy winning with active traders two weeks ago, we held our inaugural Hood summit in Miami. It was really awesome to have over 400 active trader customers together for a few days and we introduced three exciting new products first we announced index options.

Which are one of the fastest growing retail products and make up nearly 10% of U S retail options contracts.

Our customers have been trading them on other platforms to date, so they're excited to bring their trades to robinhood and leverage our industry, leading pricing and we're excited to expand our addressable market.

We announced futures here, we're not only offering industry, leading pricing, but also a great customer experience with our OSM futures ladder.

Flat: We continue to believe that futures can be a nine figure revenue business for us over time also building out the infrastructure behind futures has also enabled us to offer event contracts, including our new presidential election market that we launched this Monday it was great to see customers quickly engage with this new product trading over 10 million.

<unk> contracts in the first full day and on track to more than double that today.

Third we launched Robin Hood legend, our new state of the art desktop platform, which we built from the bottom up for active traders. It's clear for from customer feedback that legend is really resonating. So we're doubling down on this new domain. The team is hard at work to rapidly ship more functionality for customers as additional context.

Flat: While we are number one in mobile trading that's only half the retail trading market today. The other half is on web where we havent meaningfully competed in the past so launching legend is doubling our addressable market.

We have a lot of momentum in our active trader offering as we close out the year as I said earlier Q3 option volumes were up 47% year over year to a new record in Q3 equity volumes also increased up 65% year over year to a three year high and this is even before the full rollout of index options futures and Robinhood ledge.

Flat: In closing we had another strong quarter in Q3, and you should know our team continues to work incredibly hard to deliver even more value to our customers. The roadmap is full there is so much to do and we're excited to share a lot more with you at our Investor day in December now lets move to questions.

Thank you Brad for the Q&A session, we will start by answering the top tier shareholder questions from say technologies ranked by number of boats, which has different questions that we have already addressed on this call or in prior quarters.

Together the questions the chair to common theme.

Yes. Thank you for the question.

The first thing I want to say is we've really been humbled by the demand we've seen so far for the gold credit card. The waitlist is close to $2 million and so far we've rolled it out to about 100000 customers and I think if you compare this to how other successful credit.

Flat: Card programs that are new have scaled.

It's a pretty quick ramp but of course, we also recognize that small compared to.

The waitlist, the waitlist, frankly exceeded our expectations and we're working as hard as we can to get it out as quickly as we can but it is also important for us to make sure. We don't incur significant near term losses. So we have to understand the customer behavior and the economics, because the credit card.

Anas can get quite big and also if we're not careful that could mean losses. So.

As I mentioned earlier, we liked the behavior, we're seeing and if the behavior. We're seeing continues in this way over the next year, we expect to roll the card out to multiples of.

Flat: Where we are today.

Thank you Brad. The next question is also for you and it asks are there any plans to introduce a way to send or receive money to other relevant users via the robinhood ecosystem.

Yes, we've actually experimented with this in the past when we rolled out robinhood spending and the robinhood cash card.

A couple of years ago now.

Right now the focus is really on the credit card offering we're seeing.

Flat: Amazing feedback and strong demand for that so we're focusing on making sure we scale that.

But we do anticipate growing our offerings so that.

Anything that you can do on another consumer finance app or products can be done on robinhood as well. So this is this is certainly something that we're thinking about.

Flat: Alright.

The third question is also on Robinhood gold.

Speaker Change: So right kids make robinhood gold worse, each time, how we will go to continue to add value to users and what new benefits as robinhood planning to add for gold users also for glad yes.

Speaker Change: Yes, so the strategy with gold is to deliver an offering that provides customers with exceptional value in every market environment, regardless of whether the rates are increasing or decreasing you should be able to get tremendous value from.

From Robinhood gold now some of the value props naturally do well in an increasing rate environment cash sweep with high API is one of them other products tend to be more attractive in declining rate environments.

And as a matter of fact at hoods summit, we recently announced that gold customers will receive differ.

<unk> differentiated better pricing on a few of the products, we announced so the pricing while industry leading across the board is even better on index options and futures for our gold subscribers.

Flat: So.

While rates on sweeps, maybe coming down because of fed cuts.

We're going to keep investing in gold and for every new product. We launch we ask ourselves how can we make it even better for our gold subscribers and as you see as we continue to rollout new products gold should get even better and better.

Speaker Change: Great. Thank you for that and the last question is for you Jason.

Jason can you describe the plans for the live tax gain and loss monitoring that Youre rolling out.

Sure. There's a couple of things I'd highlight on tax management first of all we recognize it's really important for customers just.

Speaker Change: Just yesterday, we announced our realized P&L tool.

Chips, so that one's life for customers now.

Flat: And we also know that tax slot selection in the App is important for customers and I'm excited to tell you that we have employee beta testing going on right now for tax slots and the team is pushing hard to get it in the hands of customers really soon.

We think it's really good.

Youre going to like it.

Flat: Alright.

Speaker Change: That concludes our shareholder questions from say technologies, we appreciate our shareholders, taking the time to ask these questions and glad Jason and look forward to more next quarter. So now I will turn the call over to Catherine to lead Q&A from our analysts.

Speaker Change: Yeah.

At this time I would like to remind everyone that in order to ask a question. Please sorry, the number one on your telephone keypad.

Could you please limit your questions to one and re enter the queue for any additional questions you may have.

Your first question comes from the line of Craig Siegenthaler with Bank of America. Please go ahead.

Good afternoon, everyone hope everyone's doing well.

First we want to congratulate you on the legend loss launch and I saw there were I think a thousand sign ups in the first 40 <unk> slide.

Post the launch, but what is the level of sign ups to date.

Speaker Change: And how many of them are incremental sign ups to the $24 4 million accounts. There are robinhood as of September 30.

Speaker Change: Yeah, I mean, we are still the product is not quite on gated in the sense that anyone can just access it. So we've been rolling out to multiples of that number but haven't yet sort of like open it up to everyone.

Speaker Change: Early feedback is extremely positive.

I know you guys, probably see the level of live streamers and folks on social media.

It's been tremendous and the team is I would say even more motivated to keep the momentum and make sure the product is better and better because we really feel like.

We've got something great here.

Our next question comes from the.

The line of.

Speaker Change: Dan.

Speaker Change: Mizuho. Please go ahead.

Hey, guys great results again.

Dan: Very proud of you.

Speaker Change: Thanks, Dan.

You got it yes of course well deserved.

I was very intrigued with the presidential.

<unk> market.

<unk> got a lot of press and we've been getting a lot of questions on it.

So can you give us some color on how it's doing how accretive it is to overall retention anything you can tell us about it would be great. Thank you.

Speaker Change: Okay.

Speaker Change: Yeah. So.

First off we just rolled out to 100% of customers after starting the rollout.

Just this Monday so.

Huge kudos to the team for that the path to offer this product was paved really less than 30 days ago, and we really moved quickly to make it available to customers ahead of the election.

Speaker Change: So to give a little bit of context around this one.

One of our focus areas is to win in the active trader market and I think really to do that.

Speaker Change: Our approach is that if you are an active trader user.

Using robinhood should put you in a position you should really associate Robin there would be with being at the forefront of technology and innovation and trading and I think offering products like these which you can't really find add.

At many of our competitors is the best way to do that so feedback is really really good you can see on social that it's resonating with customers very very clearly.

But we rolled out to 100% right before the call started so I think it's a little bit early to tell.

To give to give you too much.

Speaker Change: Other than yesterday, we did about $10 million contract. So that was pre full rollout.

And we've done even more than that already today.

Speaker Change: Okay.

Speaker Change: Thank you your next week, we can take the next one.

Speaker Change: Yes.

Speaker Change: Okay.

Your next question comes from the line of Patrick Morley with Piper Sandler.

Speaker Change: Please go ahead.

Yes. Good afternoon, thanks for taking the question.

Just had one on index options and futures trading now that you've announced the pricing on those products I was hoping you could help us better understand the economics, there I know index options carry relatively high exchange fees. All your margins look like in offering those contracts how much you expect to make for a contract.

And then maybe as part of that your expectation for how much volume is going to come from gold versus non gold members.

Speaker Change: And then if I could add a follow on modeling question. It looks like your equity fee capture declined by about 20% sequentially.

Speaker Change: So any color there on what drove that would be helpful. Thanks.

Sure Patrick I'll go ahead and take both of those this is Jason.

Speaker Change: So.

Speaker Change: Kind of just going index options first the non gold price will be kind of industry, leading at 50 per contract in the gold price will be even better.

Speaker Change: At 35.

Per contract cash settled index options as you know is a really fast growing segment within options and so we see this as a <unk>.

Speaker Change: Big opportunity for us to take market share even faster.

Speaker Change: Context, we have been taking double digit market share for some time now and thats without having this hot hotter segment offer.

Speaker Change: Also on.

On fees.

Exchange fees will be passing those through to the <unk>.

Customers on on futures non gold 75 per contract and goal to get an even better deal at 50 per contract. We said that futures over time based on volumes, we've seen at our competitors. We think it can be a nine figure business for us so so big opportunity for us.

The second part of your question was equity take rates.

Theres really two things that affect our take rate on equity and first is volatility and the second is mix and what we saw in the quarter was just customers buying more kind of larger more liquid names.

Speaker Change: Okay.

Your next question comes from the line of Brian Bedell with Deutsche Bank. Please go ahead.

Great. Good evening folks thanks for taking my question.

Brian Bedell: Maybe just on the cadence of customer pickup as we move into <unk> just on.

Speaker Change: On.

Futures and index, an index contracts in terms of.

What portion of the user base have you roads future's out to so far and what are the rough maybe rough plans and doing that for the rest of the quarter and then same on the index options timing of when you expect to roll that debt and then if I could just sneak one more in on desktop users.

Good to hear the great feedback any observation yet on increased velocity from those folks that are using it so far.

Yeah, I would say that the folks that use the Robin Hood legend product tend to be.

Speaker Change: Among our most active so the velocity is quite high.

Speaker Change: That being said.

We rolled it out to.

Speaker Change: People.

During the Robin Hood legend keynote and it was the first thousand people that.

Speaker Change: Sort of like signed signed into their robinhood accounts on desktop.

And I think we filled the 1000 slots and 45 seconds. So those customers, we're very keen and engaged to.

Speaker Change: To try the product.

Early feedback is very positive and I think it's really important to establish a great reputation among active traders because their network in a way they talk to each other they listen to other active traders and while we've been seeing is really positive signs from the community about Robbins with legend.

But that said, it's not rolled out fully yet so we don't have.

We don't have like the perfect picture of what it is going to look like at a 100%.

Speaker Change: So far we really like what we're seeing timing on futures and index options, yes timing on index options and futures. So the first robinhood derivatives product that.

Rolled out is our presidential election market.

Futures outright will probably be rolled out in the coming months, but right now the focus of the futures business is really just making sure everything goes as smoothly as possible for the election next week.

And then of course.

Speaker Change: Rolling out outright.

As a top priority.

Index options as well coming in in the coming months.

Your next question comes from the line of Devin Ryan Richardson GMP. Please go ahead.

Speaker Change: Yeah.

Speaker Change: Great.

Hi, Jason how are you.

Speaker Change: Great.

Speaker Change: Thanks.

Wanted to ask a question just on interest rate sensitivity. So obviously, we saw the first 50 basis points and fed cuts last quarter. I think you talked about 25 basis points as the $40 million impact and that was just essentially the simple math off of balances at the time and.

It didn't take into consideration potential for.

Accelerating margin utilization or higher SEC lending activity or higher transaction activity, which often happens as rates come down. So just wanted to get a sense of whether youre seeing or expecting to see kind of a deceleration in margin.

How you would frame the upside in SEC lending it seems like we're operating at a depressed level do you see a lot of upside in a more normal environment and then are there any other kind of offsetting forces we should be thinking about beyond just the simple math of a right time to balance. Thanks.

Speaker Change: Yes, you bet and.

And the rate times, the balance again, this quarter would be roughly $40 million for each rate cut.

Speaker Change: On <unk>.

Speaker Change: On margin, we've been seeing really nice growth and margin balances following the.

Speaker Change: The reduction of rates for customers that has continued into October. So that's been moving up we'll share that number with you here in a couple of weeks.

In terms of SEC lending.

A couple of dynamics going on there first on the just the business inputs themselves. We had about 400000 additional customers join the program this year and several billion in equities added to the program.

Which is great for the long term viability of that of that program at the same time, we saw Raytheon specials that we get hard to borrows come down a bit versus Q2, and I think thats really what youre seeing that in terms of the underlying business drivers, we feel really good about that and then lastly.

We've talked about for some time.

About how we think we have a naturally hedged business model that as rates come down we see interest rates turn into a tailwind for the business around growth I think you've already started to see some of that with with the trading activity.

Options at an all time high in Q3 equities hitting a multiyear high.

So so.

And even more confident about the tail winds that come from from falling rates and we'll just have to see how it plays out from here.

Speaker Change: Okay.

Speaker Change: Yes.

Your next question comes from the line of Benjamin <unk> with Barclays. Please go ahead.

Speaker Change: Okay.

You might be on mute.

Speaker Change: Thank you.

Hi, sorry. This is Dan can you hear me.

Yes, we can hear you now hey, sorry about that I had the phone stuck on mute.

Well. Thank you for taking the question I was wondering if you could talk generally about your path to product innovation and launch it looks like with the active trader offering the credit card, you're being very kind of cautious and measured in terms of the rollout how should we read that into future product development. I think we're all expecting a lot to be announced at the December investor day, you've talked about broader.

<unk> crypto global brokerage offerings. So could you talk about sort of your approach to like product philosophy, and how we should think about.

The pace of rollout for current and future product launches. Thank you.

Yeah, I think that it really depends on the product we're talking about.

Speaker Change: For example.

Just this week with presidential election market, we started the rollout on Monday and completed it on Wednesday, which is.

And making sure that with a waitlist of 2 million customers that business could get quite big but if we don't manage it carefully like losses could get big as well so that we want to make sure we prudently scale it.

And so far we've onboard at about 100000 customers, who love it and early signs are good.

Roughly in line with how fast other successful card programs have scaled in kind of like the first year of operations. So that one it's just us making sure that we're understanding customer behavior understanding credits since that's a new business for us and.

Speaker Change: We're feeling good.

Speaker Change: But yes, we recognize the demand is extreme so we're working to onboard people as quickly as possible and we expect to get to multiples of our current level over the next year.

Speaker Change: Okay.

Your next question comes from the line of John <unk> with Needham <unk> Company. Please go ahead.

Hey, Jason Thanks for taking the question.

I guess, just going back to the futures index offering any expenses down the road that we think about increasing on the back of that.

Recall, if we got to kind of that margin of where it should shake out and then also just what drove the crypto rebates higher to 48 basis points.

Yeah I'll go ahead and take both of those.

So first on the on the crypto rebates.

We've been experimenting for some time on crypto rebates and we've been seeing the rebate rate come up we always want to have great prices for customers, but also balance the return that we generate for shareholders on that activity.

So we started the year about 35 basis points and you've seen it.

Move up including in October where were running at 48.

Speaker Change: Basis points in terms of futures and index options.

Those products really benefit from the broader kind of tech technology structure that we have at the company.

Speaker Change: We have.

Speaker Change: Roughly 90% fixed cost base and relatively low variable costs and futures and index options benefit that from that as well.

Speaker Change: Which leads to really high incremental margins as we as we grow those businesses.

Speaker Change: Okay.

Your next question comes from the line of Stephen Ju with withdrawal for Thank you. Please go ahead.

Speaker Change: Hi, good evening.

Speaker Change: Hey, Stephen Davidson, Hey, I wanted to start with a question on actually a chart that you had included in <unk>.

A recent presentation deck, just showing the strong relationship between our revenues and AUC.

Speaker Change: It's been now persistent trend over the last few quarters I mean in this particular quarter, we did see some decoupling.

Speaker Change: Amid some of the rate cuts and subdued trading activity and was just hoping you could speak to your confidence level that that relationship should ultimately still hold even amid the impact of further rate cuts from the fed.

Yes, I feel I feel really good about that relationship Steven.

One way to think about it as just bridging revenue from Q2 to Q3, there's really two things that distinguish our second quarter and our third quarter. The first is in the second quarter, we have seasonally high proxy revenue that was about $30 million and you saw that reduction in Q3, as we move past that seasonal quarter.

Speaker Change: <unk>.

Bridge items from Q2 to Q3 is the contra revenues on the match promotions and.

In the.

In the quarter, we saw a step up to $27 million that was an increase of about $14 million in contra revenues.

Speaker Change: Versus Q2.

Q2, and I think thats showing up in the relationship that you are drawing to AUC importantly.

Most of the incremental $14 million related to the 1% boost on gold deposits and that's something that we're winding down in November. So as we look forward to Q4, we expect Q4 to step up Contra revenues in a similar amount that we saw from Q2 to Q3.

But then subside and grow at a slower rate.

Zooming out and feel really good longer term.

Speaker Change: About the core business.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of understanding the FQ Barclays. Please go ahead.

Hi, Thanks for taking my question just wondering can you discuss the deposit trends for some of the recent promotional offers and then what's your strategy for.

Deposit balances going forward. Thank you.

Yes, we love the we love the matches on deposits, we've seen customers really respond to it.

From a finance perspective, we track that behavior of the.

Speaker Change: Cohorts.

That come in and we've seen like for example, the 2023 match promotions have already paid off.

The payback periods are around one year four 1% in kind of in the two to three year zone trending more towards three years on the retirement matches that of 3%. So we feel really really good about that.

Our third straight quarter of $10 billion plus in net deposits from our from our customers and continuing with a longer term trend of 20% plus growth.

The HUD week promotions that we did brought in.

$2 billion. So that was a two week promotion and really really strong response from customers and in addition to the relatively quick payback periods. We just love the potential for compounding effects for the business over time.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Ken Worthington with Jpmorgan. Please go ahead.

Hi, This is Matt <unk> on for Andre Ken Thanks for taking our question.

Speaker Change: Can you discuss it a bit already but we wanted to dig a little more into the strategy around the election related event contracts.

So could you walk us through your ultimate decision to lift these event contracts, how they fit into the product roadmap and ultimately as Robin had considering getting bigger entities sport betting type products. Thank you.

Speaker Change: Yes, I'd say overall as a philosophy, we want to make all product categories available for customers over time, particularly for active traders.

We want robinhood to be associated with.

Instrument is available for institutions then.

We have to make it available for for retail as well.

I think a nice other secondary impact is it provides people with a reliable data source about where predictions.

Speaker Change: Predictions were people predict the market will land.

Speaker Change: This.

Speaker Change: <unk>, our Q&A session I will now turn the call back over to <unk>, Chairman and CEO for closing remarks.

Speaker Change: Okay.

Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Q3 2024 Robinhood Markets Inc Earnings Call

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