Business Breakdowns
· 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?
· Arthur Olson
[00:00:00] S1: I don't think there's any desire. I don't know why they would. I've never seen a company that has this expansive a view of itself, and in the best possible way. It's not delusion. They're executing against it. They've earned the right. I would encourage any of our listeners that are interested to watch the Investor Day from late 2024 last year, and they outlined these three growth arcs: win the active trader over the next one to two years, use that to fund winning wallet share with the Millennial and Gen Z—this goes to our banking discussion and the growth of Gold—looking out past that, they are for sure going to disrupt the low end of the wealth-management industry. There's just no question about it. My conviction in that has grown a lot just in the last couple weeks as I've done more work there. That's another revenue stream that's going to come down the pike that, using AI, and then they made an acquisition of a company called TradePMR that does custody for RIAs. I think it's actually going to look very much like TurboTax and TurboTax Live, that evolution of going from DIY tax—and Robinhood is basically DIY investing—to a hybrid model where you still are doing most of it yourself, but you have AI helping guide you, but then also the option of if you got a tough question or you want some real advice, here's a little button up top and we're going to connect you to an actual RIA. With all of those aspirations in front of them, I don't see any chance of taking an acquisition offer.
· Matt Reustle, Arthur Olson
[00:00:00] S0: Something told me that was the answer based on the ambitions. Worth mentioning. [00:00:00] S1: One other risk: the reality is the stock is up 7x over the last year. Stocks can get ahead of businesses. I don't want to make a call on valuation or what makes sense, and every investor has a different time horizon, but I would just note that stocks can get ahead of businesses in the short run. [00:00:00] S0: It's always good to have that disclaimer in there. This has been fascinating. I've learned a lot more about Robinhood despite there being so much out there about them. It's deepened my appreciation and understanding of exactly what they're doing. We close out the conversation with just the lessons that you might be able to take away and apply elsewhere. Is there anything that stands out as a lesson or lessons from Robinhood that you could apply as an investor elsewhere?