Robinhood Markets, Inc. (HOOD) Earnings Call Transcript & Summary

Excellent. So you touched on Robinhood Chain. I just want to ask one more there. You said it's positively surprised you and the activity has obviously been robust in the past few days. What do you see that customers and developers are reacting to that's driving the success? Is it technology, distribution or something else?

Yes. So the short answer is, it's the stock tokens. So tokenized representations of U.S. equities. Now we launched stock tokens actually a year ago in the EU. And it was sort of a much more walled garden approach. So you can actually trade them. You had 24/5 access, not quite 24/7. And it was within kind of the walled garden of the Robinhood app. And they didn't really get incredible adoption quickly because I think that they were in this messy middle of not having any credible differentiators versus traditional stocks, which people could get in those markets. and also being just a different construct. So you had to explain to people, okay, how is this different than holding equity, it's a derivative. So I think they were kind of a messy middle product. What happened was 2 months ago at our event in London, we announced the next version of stock tokens, which basically released them into the world of DeFi. So they were no longer confined to the Robinhood app in the EU, but they could now go on chain, which meant that they could be put into DeFi pools. They could be composed in smart contracts written by third-party developers. They could be paired with other crypto assets. And that led to a flurry of activity. And so we're seeing developers doing things with stock tokens that we didn't imagine. We couldn't have foreseen. And I think it was that unlock of it being composable and a core primitive for developers who are building things on chain that really got people very, very excited. And so I talk a lot about how there's sort of like 2 elements of on-chain activity. There's the RWAs, real-world assets, stock tokens being an example there. And then there's things that are crypto native like memes. And I think what we've seen is not just activity in both individually, but also them being composed together in ways that we couldn't anticipate. So -- and we're just a couple of weeks in, right? I think there's a big road map ahead of us for extending it to all kinds of other products and asset classes, adding more primitives, expanding stock tokens beyond 200 into a larger number, really ramping liquidity and getting even more institutions on board. So I think we see a path to really scaling this thing. And even though the volumes are high, it's still a relatively small percentage of -- I mean, vanishingly small percentage of the total equities market in size. So we feel like we have much more room to run there.

I want to change gears here and turn to Trump Accounts, which clearly had a strong rollout. What do you -- what would success look like for you over the next few years? And maybe you could also comment a little bit on cross-sell opportunities over time.

Yes. So Trump Accounts, for those of you that are not familiar, you should know about them. Basically, it's an account that is -- that allows every child born in this country to be invested in an S&P 500 ETF of the top companies. So at birth, an account is created, funded by $1,000 from the U.S. Treasury. And then some great philanthropists like Michael and Susan Dell, Brad Gerstner who's also one of the creators of the program and many others have actually sponsored their communities, their neighborhoods in Michael Dell's case, ZIP codes throughout the country and have essentially air dropped dollars into these children's accounts. And the idea is a lot of people don't appreciate what compound interest does. I mean if you start with just $1,000 and you add $50 a month, that adds up to hundreds of thousands of dollars, potentially millions by retirement age. And so we wanted to make that front and center, and we want to make sure that because the longer you have the opportunity to compound the larger that end result is, people should start at age 0 and not even at 18 or much later. So Robinhood is serving as the sole initial broker and trustee of the Trump Accounts in partnership with BNY and the U.S. Treasury and IRS to administer it. And yes, there's 70 million children under the age of 18 that are currently eligible for the Trump Accounts. So the current goal is how do we build the ecosystem around these products while also growing them as quickly as possible so that every single child under 18 has an account that's funded. So that's the goal. And there's a couple of different elements of this. The first part, which shipped in July was the actual consumer app. And so the consumer app allowed customers to get the treasury contribution. And if anyone here has children under the age of 1, any child born in 2025, I encourage you to get it and to actually -- if you know people, get them to get set up as well because it's free money, right? Free money for your child's financial future. So that was step one. Recently, in the past couple of weeks, we've started seeing the donor funds flow. So Michael Dell's contribution flowed to kids in the state of Texas early last week and then to kids throughout the country. And you saw the excitement on social media. People would get their donation and they would tag Michael Dell, they would tag the Trump Accounts. And one of the things that gets me very, very excited about this program is actually this philanthropic potential. So if you think about it, we don't really have a default solution for philanthropy in this country. If you want to do philanthropic giving, you kind of have to deal with the morass of rules and regulations, you have to vet charities. There's not always the most scrupulous actors are in that space, unfortunately. Even if they're legitimate, you have to look at how efficiently are the funds being used, right? And so all of this adds up to friction if you want to engage in charitable giving. And I believe this can become the default option. So directly to children, extremely cost efficient. And also you get the tax savings, which are attractive to -- for people that are interested in this stuff. And so one of the things we're doing is working on an experience for donors so that you can actually see who are the top donors in this country, who are the top donors per state. If you want to donate to a specific school, we want to make that as easy as possible. And I think that, that's going to be huge. Employers, just like 401(k)s, employers are a huge vehicle for getting more people into the ecosystem of investing through things like 401(k)s. So we want to make the best employer experience for Trump Accounts as well. And so there's probably -- the great thing about the program and also somewhat stressful thing because it's been received so well, everyone is excited. And so we've just been hard at work with our partners, just trying to deliver as fast as possible and to actually help change the perception of government products because let's face it, government is always known for producing the best products. In previous administrations, we've had some footfalls. So I think this administration with Joe Gebbia over at National Design Studio, who's one of the co-founders of Airbnb, are really trying to reverse that and actually keep us at the top of our game. We want to make sure we're working as hard and upholding the quality bar of the U.S. government. So we take that extremely seriously. But yes, I think ownership from birth is like the most important thing we could be doing for our mission. So we're very excited to work with our partners to make it better and better.

So let's zoom out a little bit on wealth. You now have a bunch of different wealth adjacent products. You have Robinhood Strategies, TradePMR, now Trump Accounts. How do you think about the longer-term wealth opportunity for Robinhood? And I guess what are the TAMs and clients that you'd like to serve over time within wealth?

Yes. I mean the wealth picture in this country is constantly changing, which is a great thing about it. I mean a lot is talked about wealth inequality and centralization of wealth. And I think those are problems that obviously, we're working to solve, particularly on the private company side through things like Robinhood Ventures. But -- it's constantly changing and it's very dynamic. And over the next several decades, over $100 trillion of wealth is changing hands from older generations to younger. And I think young people are going to be the beneficiary of that through inheritance and through other things, there is going to be what we call the great wealth transfer. And now the question is, how can we help people throughout this? How can we help them on both sides? And I think the answer is Robinhood needs to become your overall wealth platform. So we started with individual stocks and taxable accounts. Now we offer pretty much the whole gamut of asset classes. We started with just self-directed. Now we have through strategies, managed accounts. You can create up to 10 different managed accounts that are managed for you at very low cost. We have TradePMR, which allows you to have a human adviser to help you with your comprehensive financial needs. We have Gold and Platinum cards. In my opinion, granted I'm biased, the 2 best credit cards on the market. I mean, they've been incredibly disruptive. Gold card we recently announced crossed 1 million cardholders. I mean, in recent history, I think there hasn't been a faster-growing credit card, certainly not by a fintech. So that's been very, very successful. Robinhood Banking gives you high yield on checking as well. That's a big value prop because if you're used to banking products, most of them don't even give you yield on your savings. And right now, the rates are north of 3%. The ones that do generally don't give you yield on checking. And so you have to play this game where you just have to think about, okay, do I have enough money to pay my bills, but I want to optimize the yield. So -- and then avoiding things like overdrafts. You don't have to think about any of that. Your money earns the same high yield regardless of whether it's checking and savings. So it's little things like that where we try to remove the friction and the mental overhead and the kind of incentive that sort of the incumbent players have to maximize their economics on all of your assets. So I think we're tackling the overall wealth picture bit by bit. But yes, now we're expanding not just asset classes, but also account types and capabilities. And there's still things that are missing. But I think over the next couple of years, you should see parity with the existing places where people store their wealth and more capabilities that you find only at Robinhood.

So remind us on the road map for Agentic Trading from here, I guess, in terms of new products that will be traded. And then maybe how you're thinking about potentially creating a simpler offering that's more user-friendly for customers?

Yes. So Agentic Trading, that's an example of one of those products we rolled out that you won't find at legacy brokers. And basically, in its first iteration, what it allows is if you've got an AI agent, maybe use Claude or Claude Code or Codex, you can connect to the Robinhood MCP, which you can think of it as an API, an interface for agents to touch different parts of your Robinhood account. And we launched that with equities only and in a segregated account that you had to separately fund using very tight controls because we wanted to -- people aren't used to this stuff. So we wanted to dip our toes in very gently. Then we added options, then we added crypto. And of course, the road map is all assets. So imagine prediction markets, futures, everything that you can trade on Robinhood will be available to your agent. And we want to make sure we do that safely and give you access to all the capabilities. The other thing that we saw, which was interesting, is that a lot of people find the friction of having to go to their desktop and set up a Claude Code and link it to Robinhood to be not ideal. So we're working hard to solve that as well. We want to make it so that it is a seamless experience and unlock these agentic capabilities to people that don't have computer science degrees, which a lot of -- we hear about Claude Code, maybe we have friends using it. If you look at the country, there's a very, very small percentage are actually using those tools. So I think we have to make it easier. And if we can do this, the end goal is giving active traders the power of a hedge fund in your pocket. So I mean these AI models are getting increasingly capable. They can do very deep analysis. They'll have access to all kinds of data. And if you couple it with execution and safe guardrails, yes, I think that it can be really powerful. So you should expect us to keep marching along that road map. And you'll see, as we have been consistent improvements and expansions of capabilities at a pretty rapid rate. And I'll flag, we have our active trader event in Houston later this month. So I mean, yes, there will be lots and lots of new things for our active traders there.

All right. I just want to turn to prediction markets, which have quickly become a very sizable business for you. Sports has had the most growth so far. Maybe you could just break it down into the outlook for sports, non-sports, macro events, et cetera. And then just maybe comment a little bit on Rothera and the road map there as well.

Yes, yes. So a couple of things are interesting with prediction markets. And I think we have a bit of a unique vantage point because we're one of the few players that offers so many of these products side by side, right? And we have prediction markets. Of course, we have stocks and options and futures, and we have all kinds of other products like retirement accounts. And we do get some criticism of people just not being used to seeing prediction markets and retirement in one place. But what we've been seeing, which I think gets us very, very excited is prediction markets have been a very effective top-of-funnel driver. So a lot of people come in for prediction markets to engage with those products. And then we see them actually engaging with our other products at a significant percentage. Someone will come in, they'll trade an event contract, then they'll go and buy an equity or open up a retirement account. And so I think the goal and the types of products we incentivize are retirement. If you think about the products in the Robinhood suite that will actually pay you to use, our IRA product through Robinhood Gold has a 3% contribution match. So that means if you put in $1,000 a month or $1,000 a year, I should say, we'll put in $30 on top from Robinhood. So economically, I think it's the most compelling IRA product out there. Now the problem is, it's like a less sexy product, right? So you don't see people running billboard ads of these things because it's just -- it's less effective as a top-of-funnel driver. But if we can bring in people through other things and then get them to open retirement accounts, I think it can be counterintuitively a very effective way to actually grow people's long-term wealth. So that's one of the reasons we're excited about it and why we think it should be integrated into the overall product suite. As far as sports and the kind of split of activity there, it started out being mostly sports, like vast majority. But what we've been seeing over the past couple of months is actually increasing product market fit with other categories like economics and crypto in particular. So I think that actually gets us even more excited because our crypto business is very significant business. And if we can give people the options of not just futures spot, but also integrate it with prediction markets in one place, that's sort of a complete solution for crypto traders. And over time, we see a lot of synergies between prediction markets and other assets like stocks. And I think as you see the markets and the products continue to evolve, I think those will just continue to take more and more share. So sports, I would think of as an effective wedge, not just for us as a company, but for the prediction markets industry writ large. But you've seen that once we've gotten the wedge and people have learned to use these products, it's broadening much more widely. And I think we should expect that to continue and perhaps even accelerate.

All right. Well, with that, we're out of time. But thank you so much, Vlad. This is fantastic.

Thank you.