The company's fourth-quarter earnings showed promise of a return to profitability and strong growth. Gabby Jones—Bloomberg/Getty Images
As a technology and finance reporter, I've written about many public companies, and I think Robinhood is one of the most interesting. This is partly because the company excels at product innovation, but mainly because of its compelling story. Robinhood believes it can move beyond its roots as a platform for people in their 20s to bet on small amounts of YOLO stock and become more similar to powerful full-service brokerages like Fidelity and Fidelity. Charles Schwab.
But it also became clear that Robinhood has a habit of stepping on pitchforks. These include the time he had to issue billions of dollars worth of dilutive warrants to avoid collateral disaster, and the lengths he went to with regulators over gonzo marketing and other high-growth techniques. This includes overlapping collisions. At one time, as much as a quarter of Robinhood's revenue came from selling the novel Doge cryptocurrency. Episodes like this and stock price fluctuations often made Robinhood look like a bolt-on acquisition of a major bank rather than a full-fledged brand in the long run.
But that hasn't been the case in recent months, as Robinhood has avoided making stupid mistakes while perhaps showing it has a long-term plan. This was reflected in the company's fourth-quarter financial results on Tuesday, which showed a return to profitability and strong growth expected in the coming years. HOOD stock rose about 20% on Wednesday as investors liked increased trading in cryptocurrencies and stocks and a surge in interest-related income.
Interest funding is primarily derived from customer balances and margin loans, but it is neither very expensive nor a path to long-term growth. That's because interest rates can rise, of course, but they can also fall, and they will likely do so over time, reducing Robinhood's profits in the process. Learn more in these company slides. This reveals something unusual for an earnings report.
But the most interesting question to ask about the latest earnings is, nearly three years after Robinhood first went public, does the company's story of growing into the next Charles Schwab still seem viable? It depends on whether it looks like it. The answer is a cautious yes. Robinhood currently has approximately $1.7 billion in retirement assets (thanks in part to its aggressive incentive program), and the average size of customer balances is increasing. This means that the company's core customer base, who came primarily as poor YOLO types, acquire wealth as they get older and start using Robinhood, much like their parents did with Charles Schwab (who was a disruptor in his own right at the time). It's consistent with CEO Vlad Tenev's long-held theory that it will. appeared in the 1970s).
Robinhood also has some intangible qualities that contribute to its long-term success. These include Tenev's continued presence, which, as with other founders, has ensured that his company continues to innovate. On the other hand, for those who think this is too rosy and want a reality check, here's one: Robinhood's total assets under management have increased by just $5 billion since 2021, for a total of just $103 billion. . Compare this to Fidelity and Schwab, which control about $11 each. Trillion and $7 Trillion. Robinhood still has a long way to go in the big leagues. Nevertheless, this week's results were a reminder that this company still has the ability to surprise.
jeff john roberts
jeff.roberts@fortune.com
@jeffjohnroberts
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