Business Breakdowns
· 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?
· Arthur Olson
[00:00:00] S1: The big lesson for me is that product wins. This was an industry that was very sleepy, very comfortable, and very profitable. All the VCs said, "Robinhood, you're going to fail." Everybody that came before them that attempted something like this did fail. What they didn't factor in is Robinhood's attention to detail and focus on product. Customers ultimately recognize that. At our firm, we break up the investable universe into generational winners, which is what Robinhood would be. You've got stalwarts, which are these stable, steady Eddie companies, and then you've got opportunistic situations where maybe it's a turnaround. That is the risk of the stalwart bucket of saying this is a really profitable monopoly and they're crushing it, which is what I'm sure people were saying about Schwab and Fidelity at one point. And you have a Robinhood that just comes up and steals the entire next generation out from under you. I think that is something that investors need to be aware of: not to write off a small competitor if the product is very strong. One thing that impressed me as I've really gone deep on Robinhood is the extreme attention to detail within that company. You pick up the app, and for those that haven't used it, this sounds like a squishy competitive advantage of it just feels good, very much akin to Apple. And if you talk to people that have worked there, it's a known thing in terms of you'll have PMs and engineers that come from other fintech companies, and it's literally like a six-month adjustment period where they have to level up their game and realize that it's not just about pushing out a product that works. The product has to be beautiful, has to feel great. A big part of that is a large contingent of Robinhood customers are also users and/or power users. Pretty much any product that they launch first gets beta tested within the firm for a couple weeks, and they really rip it to shreds. It is that sanding down, it is that nitty-gritty detail, and the push for polish that ultimately, kind of to your very original point, it's not just the economic model, it's really the product and being mobile first. That is true, and it's as true today as it was then. That attention to detail and that total empathy with the customer is really what has made Robinhood successful and will continue to make them successful in the future.
· Arthur Olson, Matt Reustle
Having an eye for that in a management team and a culture is super powerful. [00:00:00] S0: It's an incredible disruption story and one that we will continue to watch with the ambitions still being quite large. So thank you, Arthur. This has been a pleasure. [00:00:00] S1: Thank you.