Business Breakdowns
· Matt Reustle
[00:00:00] S0: It's difficult with this type of velocity. As you mentioned, one point you just made on that 1.5 million, half coming from taking share, half coming from net new accounts. Has the share taking or share grab been a piece of the story in recent years? Do they report that? Is there any way to measure whether that is actually something that you're seeing happening?
· Arthur Olson
[00:00:00] S1: When we think about share take, it really matters what age demographic we're looking at, and it's good to decompose. So if you look at Robinhood share in baby boomers and certainly silent generation, we're talking about 1% share. When you get to Gen X, share increases to about 20%. Millennials, over 50% market share. And then with Gen Z, over 65%. If you look at Robinhood, 75% of their customers are under 45, and that ratio is flipped for all of these legacy guys. What's really interesting too is we've got the largest intergenerational wealth transfer on record that's going to be playing out over the next 15 years, where basically $80 trillion is going to be passing from baby boomers to their children. The baby boomers are a majority on legacy brokerages, and all of their children who are receiving those funds are on Robinhood. It's got 20% share of accounts. Robinhood under-earns today, so only 2% of assets, but we expect of that transfer—that $80 trillion, and again, if you really cut it down, $40 trillion is investable assets, and then you can haircut that again of self-directed versus assisted—but we assume Robinhood gets 40% incremental share, and that alone gets you Robinhood today at about $300 billion in assets to $4 trillion over the next decade. So just massive growth.
· Matt Reustle, Arthur Olson
[00:00:00] S0: That 20% versus 2% is a meaningful opportunity to start to close things down. On the risk side of the equation, I think there's some fairly obvious ones, but the one that I wanted to focus on was the regulatory dynamics. Vlad has spent plenty of time with the regulators from everything in the GameStop moment, but also in terms of rolling new things out. Where would you say they stand just in terms of regulatory reputation, that relationship? It feels very important to me, particularly as the velocity of what they're rolling out is so high and they're doing so many different things. Do you have any sense of that? [00:00:00] S1: Their regulatory team is very strong. So Dan Gallagher runs their compliance and regulatory affairs. He was a former SEC chair and has become very much a thought leader. Vlad is even becoming a thought leader, particularly in the area of tokenization. The Trump administration writ large is very supportive of tokenization of crypto. Surprisingly, the EU has been as well. Again, this is all very early days, but actually trialing tokenization of equities is starting for Robinhood in the UK and in the EU as opposed to the US. It's certainly something to track, and Robinhood is going to continue to be at the forefront. Their reputation with regulators is good. Dan actually came on, I believe, in 2020 or 2021. He wasn't in that 2022 hiring phase, but I think his influence has grown. Robinhood has grown up as a company. Vlad has grown up as a company. I think the regulators recognize that as well.
· Arthur Olson, Matt Reustle
[00:00:00] S1: Their regulatory team is very strong. So Dan Gallagher runs their compliance and regulatory affairs. He was a former SEC chair and has become very much a thought leader. Vlad is even becoming a thought leader, particularly in the area of tokenization. The Trump administration writ large is very supportive of tokenization of crypto. Surprisingly, the EU has been as well. Again, this is all very early days, but actually trialing tokenization of equities is starting for Robinhood in the UK and in the EU as opposed to the US. It's certainly something to track, and Robinhood is going to continue to be at the forefront. Their reputation with regulators is good. Dan actually came on, I believe, in 2020 or 2021. He wasn't in that 2022 hiring phase, but I think his influence has grown. Robinhood has grown up as a company. Vlad has grown up as a company. I think the regulators recognize that as well. [00:00:00] S0: That's quite a time to join and see all of the action. He's lived through some wars, to say the least. Is there anything else that stands out to you as a major risk or thing that you would most focus on in terms of risk to the business or the stock?
· Matt Reustle, Arthur Olson
[00:00:00] S0: That's quite a time to join and see all of the action. He's lived through some wars, to say the least. Is there anything else that stands out to you as a major risk or thing that you would most focus on in terms of risk to the business or the stock? [00:00:00] S1: Generically, with a company this ambitious, trying to do this many things: focus. If you want to be a financial analyst, you could say capital allocation. Robinhood and Vlad have earned a ton of credit, or they've proven themselves in this regard, so it's not something that keeps me up at night. Those are the problems you want. Amazon, you're going to have a Fire phone every now and then. You want a company that's pushing the envelope, trying new things, and it's just such a stark contrast. If you compare what Robinhood's doing to anybody else in the brokerage space, there's really no comparison. I'm a fan of Coinbase in general, but if you compare, Robinhood is the only founder-led brokerage left. Schwab, Fidelity—we're talking about three to four generations. They're kind of managers at this point. But Brian Armstrong is a founder, and if you look at the product velocity out of Coinbase, it just doesn't compare to Robinhood. It does hammer home, yes, this is founder-led, but even amongst founders, I think Vlad is very, very impressive. Has a mathematical mind, also a genius of branding, a renaissance man, if you will. I expect him to continue to deliver as he's built out that bench of talent around him.
· Arthur Olson, Matt Reustle
[00:00:00] S1: Generically, with a company this ambitious, trying to do this many things: focus. If you want to be a financial analyst, you could say capital allocation. Robinhood and Vlad have earned a ton of credit, or they've proven themselves in this regard, so it's not something that keeps me up at night. Those are the problems you want. Amazon, you're going to have a Fire phone every now and then. You want a company that's pushing the envelope, trying new things, and it's just such a stark contrast. If you compare what Robinhood's doing to anybody else in the brokerage space, there's really no comparison. I'm a fan of Coinbase in general, but if you compare, Robinhood is the only founder-led brokerage left. Schwab, Fidelity—we're talking about three to four generations. They're kind of managers at this point. But Brian Armstrong is a founder, and if you look at the product velocity out of Coinbase, it just doesn't compare to Robinhood. It does hammer home, yes, this is founder-led, but even amongst founders, I think Vlad is very, very impressive. Has a mathematical mind, also a genius of branding, a renaissance man, if you will. I expect him to continue to deliver as he's built out that bench of talent around him. [00:00:00] S0: It would feel like a logical acquisition target for some incumbents across the financial services space, not just brokerages, which from a valuation perspective would be challenging. But where does that stand just in terms of your perspective on their willingness to ever entertain an acquisition offer or something along those lines?