When Robinhood launched its first credit card this week — including a flashy solid gold version — founder Vlad Tenev said it represented “just the beginning” of what the broker intended to offer its customers.
The move might jar with those who know Robinhood from the pandemic era, when it enabled first-time traders to make commission-free bets on soaraway “meme” stocks that soon fell short of hopes. True to its trading app image, Robinhood also rolled out cryptocurrency trading in Europe in December and launched its first overseas broking operation in the UK this month.
The credit card, however, highlights its ambitions to be more than that.
“We don’t want to just be an active trader company because the addressable market is quite small,” Tenev told the Financial Times.
Instead, the company wants to be its customers’ “primary financial institution” and help them build wealth, he said.
At first glance, Robinhood’s share price suggests investors like Tenev’s pitch of life beyond trading: following the card launch it rose 4 per cent, breaking above $20 for the first time in two years. That added to a doubling in price over six months, far outperforming the broader market on which its trading is based and bigger rivals such as Interactive Brokers and behemoth Charles Schwab.
That is the sort of performance most likely to impress its 11mn monthly active users seeking “moonshot” bets with outsized returns.
“Wild how my dad is the one holding $HOOD and not me. I just reserved my spot for their credit card. $HOOD has been really doing a good job of offering much more,” wrote user VanilaaGorila on Reddit’s popular WallStreetBets forum following the launch.
But dig down and other factors besides its broadening appeal may have equally driven its shares. That suggests Tenev and his team have further to go in convincing everyone of Robinhood’s ability to become a financial services behemoth.
Its share gains mean its price has leapfrogged analysts’ $16.42 average target price on the stock, a rare move since targets, which reflect estimates for a year ahead, typically tend to track higher than the current price.
“They want to be a superapp. That’s more of like a fintech strategy than like a brokerage,” said one analyst not authorised to speak publicly who has a target below the average.
He compared the strategy to wanting to be a US version of China’s Alipay and WeChat Pay, which have become ubiquitous in the world’s second-largest economy, offering a combination of savings, payment, shopping and trading, among other categories.
“When they sprung to life, there was no online banking in China and many, many people didn’t have a bank account,” he said. “In the US, your phone already makes it easy to go from app to app — say Chase for banking and Fidelity for savings and maybe Robinhood just for trading and Venmo for money transfer.”
Even some of those who like Robinhood doubt that it can broaden its appeal. Analysts at Bernstein this month launched coverage of the company with a punchy $30 price target, but based on their belief that the crypto market would treble in value by the end of next year. They argued that Robinhood stood to benefit from being one of the few offering a more regulated platform.
Bitcoin’s 170 per cent gain in the past six months means it has easily outperformed Robinhood, but the latter has tracked the cryptocurrency closely.
Still, just 7 per cent of Robinhood’s total revenues last year came from crypto compared with 6 per cent from equities and 27 per cent from trading options — an increasingly popular tool among retail investors that allows them to bet on stocks’ direction for a small premium upfront.
“When I’m in conversations recently, maybe around 15 to 20 per cent of it is on crypto, but the vast majority is on other products and what we’re building for the future,” Tenev said.
Robinhood launched its Gold premium subscription offering in 2016. For $5 a month, benefits now include better data, a 5 per cent rate on deposits and higher matching levels if users move retirement accounts to the platform. The credit card — only for Gold subscribers but with no discrete fee offers industry-leading benefits such as 3 per cent cash back on all purchases.
As the company has evolved, so have its metrics. Monthly active users were an early focus. At 11mn, they are still only half their level when Robinhood went public in 2021.
But analysts now put more emphasis on the 23.6mn customers with funded accounts — that is, they at least hold cash — and the company’s $118.7bn in assets under custody as of February, up 59 per cent in a year.
In a sign of Robinhood’s transformation, it pops up regularly not just in Reddit’s WallStreetBets forum but also in its Bogleheads one, where self-described “lazy” index-tracking investors discuss the merits of various savings products.
“For me Robinhood is putting all these seeds in the ground that are going to help accelerate asset gathering. Its client assets now are a fraction of many incumbents, but they’re growing at a much faster rate,” said Devin Ryan, director of fintech research at Citizens JMP, who has a price target of $25. “And because its expense base is built on sophisticated modern tech, they don’t have all the fixed costs, infrastructure, people and branches that a lot of incumbents do.”
Robinhood made a surprise profit in the final quarter of last year from unexpectedly strong net interest revenue — money earned on its own deposits as well as interest from loans to customers and from securities lending.
In its accompanying earnings call, Tenev and his finance chief Jason Warnick repeated their ambitions of “profitable growth” multiple times but avoided committing to any timeframe for producing solid net profits.
Tenev has long advocated a three-pronged strategy based on being number one among active traders, expanding its platform overseas and expanding its share of customers’ wallets — which is where the new credit card comes in.
“Part of it is us directly evolving the brand through marketing activities. But I think the larger part is just launching products that are so good for these passive long-term wealth-building cases,” said Tenev. “If more and more people are using us for their serious long-term money needs, then that will evolve the brand of the company.”
This month Tenev’s friend and co-founder Baiju Bhatt stepped down from the company “to pursue other entrepreneurial interests”.
It did not affect the share price as Tenev has long been the face of the company — but it puts even more pressure on him to win over sceptics.
