Latest / Earn Your Leisure / CEO VLAD TENEV EXPLAINS WHY ROBINHOOD'S STOCK IS UP 100% OVER THE PAST 12 MONTHS

Transcript

CEO VLAD TENEV EXPLAINS WHY ROBINHOOD'S STOCK IS UP 100% OVER THE PAST 12 MONTHS · Earn Your Leisure

• 0:01
  Speaker 1: Earners. What's up.
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  Speaker 2: can keep pushing your vision forward. This episode is brought
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  Speaker 2: to you by P and C Bank, a lot of
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  Speaker 2: people think podcasts about work are boring, and sure they
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• 1:51
  Speaker 3: What factors has attributed to the strong performance over the
• 1:55
  Speaker 3: last twelve years for you guys, for the last twelve
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  Speaker 3: months for you guys.
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  Speaker 4: I think it's really a couple of things. One is
• 2:04
  Speaker 4: that we actually had to change the strategy of the
• 2:09
  Speaker 4: business quite a bit in twenty twenty two. So in
• 2:14
  Speaker 4: twenty twenty two, interest rate environment changed in the US.
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  Speaker 4: We went from kind of a prolonged period of low
• 2:24
  Speaker 4: interest rates that you know, there was a brief pause
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  Speaker 4: where the Fed started tightening a little bit in twenty nineteen,
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  Speaker 4: but that was quickly interrupted by COVID, and we entered
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  Speaker 4: sort of like the largest largest money printing era in
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  Speaker 4: recent history by several metrics. And then the recovery of
• 2:47
  Speaker 4: COVID led to sort of like the highest interest rates
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  Speaker 4: and the biggest monetary tightening that we had seen in
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  Speaker 4: three decades or more.
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  Speaker 2: So.
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  Speaker 4: Basically, what happens is when interest rates are high, people
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  Speaker 4: are less interested in investing. And that's for a couple
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  Speaker 4: of reasons. One, if you have the ability to receive
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  Speaker 4: five percent risk free on your cash, less of your
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  Speaker 4: money is going to go towards the stock market because
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  Speaker 4: that cash interest, which is risk free, is much more attractive.
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  Speaker 4: The other thing is other people are also doing this analysis,
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  Speaker 4: and so you tend to get equity multiples dropping and
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  Speaker 4: equity prices decreasing. And so that's why in twenty twenty
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  Speaker 4: two you saw the major indices take a big hit.
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  Speaker 4: And that also kind of makes people less likely to
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  Speaker 4: want to invest. And so we saw all of that,
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  Speaker 4: and our business had really been geared towards getting lots
• 3:55
  Speaker 4: and lots of new investors who were interested in the market,
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  Speaker 4: getting them into the markets for the first time, and
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  Speaker 4: we had to change that. Now The good part is
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  Speaker 4: any new environment does present new opportunities which didn't exist before,
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  Speaker 4: and in this particular case, what happened was high yield
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  Speaker 4: savings products became attractive and the banks were really slow
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  Speaker 4: to catch up there because the banks were protecting their
• 4:22
  Speaker 4: own bottom lines and they had been used to paying
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  Speaker 4: zero percent interest in customer checking and savings accounts and
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  Speaker 4: that was kind of a key part of the model.
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  Speaker 4: And so we saw an opportunity to come up with
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  Speaker 4: a product that gives as much of that interest back
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  Speaker 4: to customers as possible, and that became the foundation of
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  Speaker 4: our Robinhood Gold product. So we gave customers a really
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  Speaker 4: high yield, one of the most competitive yields on the market,
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  Speaker 4: which right now is five percent or more for our customers,
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  Speaker 4: and you give the high FDIC insurance up to two
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  Speaker 4: and a quarter million of protection more than you can
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  Speaker 4: get it one bank. And that became the foundation of Gold,
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  Speaker 4: which is a subscription offering. And then it's obviously great
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  Speaker 4: for customers because they can get this high risk free rate,
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  Speaker 4: but it's also great for our business because by growing
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  Speaker 4: this offering, we grew the gold business. And the gold
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  Speaker 4: business is a subscription kind of recurring revenue stream that
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  Speaker 4: is sort of decoupled from trading revenue, which had been
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  Speaker 4: sort of like the biggest part of our business and
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  Speaker 4: moved up and down with the volatility of the markets.
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  Speaker 4: So that happened in fall of twenty twenty two. Then
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  Speaker 4: we launched retirement. Retirement's been going very, very well, and
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  Speaker 4: that is also less subject to fluctuations in the markets,
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  Speaker 4: because when people think about their retirement, they're really thinking
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  Speaker 4: with a thirty year time horizon or more, and so
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  Speaker 4: money that goes into retirement accounts tends to stay there
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  Speaker 4: and it's sort of a different mental calculus. It's less
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  Speaker 4: customers thinking about trading. That product has done well, and
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  Speaker 4: of course the credit card, which hopefully you guys have
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  Speaker 4: seen I have one with me that I can show
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  Speaker 4: you if you would like, that's been resonating and it's
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  Speaker 4: really just the beginning and kind of the past three
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  Speaker 4: months or so, we've seen a resurgence in equity markets
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  Speaker 4: as well, and we've been kind of improving those capabilities
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  Speaker 4: the entire time too, So really it's just the business
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  Speaker 4: strategy has changed, the company has had to adapt. We
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  Speaker 4: took advantage of the new environment that we're in and
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  Speaker 4: I think the strategy is finally beginning to resonate with
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  Speaker 4: more and more public investors, and that's what you're seeing
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  Speaker 4: in the stock market.
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  Speaker 3: I think you were unfairly criticized for making investing fun
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  Speaker 3: and democratized for new investors. But as an entrepreneur, how
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  Speaker 3: do you create new innovative products and methods but prevent
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  Speaker 3: those attacks from coming Because at the time when you
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  Speaker 3: guys were doing that, TD wasn't easy to use, wasn't
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  Speaker 3: fun to use. Can you talk to us like, how
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  Speaker 3: do you avoid being vilified while innovating in the space
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  Speaker 3: which is really conservative.
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  Speaker 4: Yeah, I don't think I figured it out yet. To
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  Speaker 4: be clear, I think that you know, we're going to
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  Speaker 4: get our fair share of criticism, and you know, some
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  Speaker 4: of it's fair. I think these are really important issues,
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  Speaker 4: and we have to make sure that you know, when
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  Speaker 4: we give people powerful financial tools, be it trading, investing,
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  Speaker 4: or even consumer credit, each of these have the potential
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  Speaker 4: to be abused, and there have been problems with them
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  Speaker 4: being abused by certain people in society, and so we
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  Speaker 4: have to we actually should be held to a higher
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  Speaker 4: standard of scrutiny, and we need to to have answers
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  Speaker 4: to those questions. So I think that rather than trying
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  Speaker 4: to kind of like avoid the question, my approach has
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  Speaker 4: been to kind of lean in and kind of hear
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  Speaker 4: the criticism and see, in some cases whether there's improvements
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  Speaker 4: we can make to the product to address the kernel
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  Speaker 4: of it that may be true, because you know, in
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  Speaker 4: all of this criticism, it's not all baseless. I mean,
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  Speaker 4: there are people that trade irresponsibly, and there's also people
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  Speaker 4: that you know, jump on a bandwagon and just trade
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  Speaker 4: something because others are doing it. And we want to
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  Speaker 4: make sure that while we strongly believe people have the
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  Speaker 4: right to do whatever they want with their money, that
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  Speaker 4: they have all the information they need to make the
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  Speaker 4: decisions that they want to make, so at least they're
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  Speaker 4: going in eyes wide open.
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  Speaker 5: Yeah.
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  Speaker 1: I mean, last time we spoke, one of the key
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  Speaker 1: components that you said of adding to the product was
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  Speaker 1: the educational piece. It was one of the things you
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  Speaker 1: said that we realize during that crazy and twenty two
• 9:00
  Speaker 1: only one that may have been a little bit asset absence.
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  Speaker 1: So even last week when we're talking about memestocks again,
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  Speaker 1: it didn't feel like Robinhood was in the news because
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  Speaker 1: you guys have made those improvements. Talk about that educational
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  Speaker 1: process and add that to the part product and how
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  Speaker 1: you guys have made that at the forefront of what
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  Speaker 1: you're doing.
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  Speaker 4: Yeah, I mean, I think that maybe it doesn't go
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  Speaker 4: as much into into like the memestock frenzy that we
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  Speaker 4: saw last week because my experiences, these folks that are
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  Speaker 4: interested in in the memestocks know what they're doing. By
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  Speaker 4: and large, they're doing a very specific thing and they
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  Speaker 4: want to make that trade. And we have multiple groups
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  Speaker 4: of people that we try to serve with Robinhood. One
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  Speaker 4: is active traders, and a big part of our strategy
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  Speaker 4: is to be number one in the active trader market.
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  Speaker 4: It's it's an important market for us. It is generating
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  Speaker 4: a decent chunk of the firm's revenue, and right now
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  Speaker 4: we're number two behind the td Schwab combined entity, but
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  Speaker 4: we have a path to number one and that's kind
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  Speaker 4: of one core component of what we're doing. We also
• 10:17
  Speaker 4: want to grow wallet share with customers and we're building
• 10:19
  Speaker 4: Robinhood and we see potential that this is working because
• 10:24
  Speaker 4: customers are asking us to do more with Robinhood. They
• 10:27
  Speaker 4: love the product so much that they don't want to
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  Speaker 4: just use it for their investing. They've shown that they
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  Speaker 4: want to use it for retirement. They want to move
• 10:34
  Speaker 4: their spend to it, and that's why we rolled out
• 10:36
  Speaker 4: the credit card. And in the future we see Robinhood
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  Speaker 4: being the place where for our customers, all of their
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  Speaker 4: assets are held at Robinhood, all of their transactions go
• 10:47
  Speaker 4: through Robinhood, and that's kind of what we're building. Kind
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  Speaker 4: of the third thing is going international. Right now, we're
• 10:53
  Speaker 4: largely in the US. We just launched in the UK
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  Speaker 4: and in the European Union for Crypto a few months ago,
• 11:00
  Speaker 4: but there's billions of people out there that don't have
• 11:02
  Speaker 4: access to these great tools, and we want to make
• 11:04
  Speaker 4: sure they're available to everyone. And kind of the way
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  Speaker 4: that I've been thinking about it is you can ask, like,
• 11:10
  Speaker 4: how can the same company offer you options trading and
• 11:14
  Speaker 4: things like futures, which are these like extremely sophisticated products
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  Speaker 4: for traders while also offering you retirement. And the way
• 11:26
  Speaker 4: that I think about it is our active trader products
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  Speaker 4: are almost like if we were like an auto manufacturer
• 11:33
  Speaker 4: like Mercedes. There's the F one AMG division which is
• 11:37
  Speaker 4: responsible for building high performance products and they might be
• 11:42
  Speaker 4: for a niche audience. They're not mass market products, but
• 11:45
  Speaker 4: there's a small section of the population that really cares
• 11:49
  Speaker 4: about performance and wants to be at the forefront in
• 11:52
  Speaker 4: innovation in automotive, and so they're building for them. And
• 11:57
  Speaker 4: on the other side, they're selling many and SUVs to
• 12:01
  Speaker 4: the mass market. And so I think it is possible
• 12:04
  Speaker 4: for Robinhood as one brand to serve active traders. And
• 12:08
  Speaker 4: these are the folks that want to be at the
• 12:09
  Speaker 4: forefront of innovation in financial markets and also care about
• 12:13
  Speaker 4: performance and speed and tooling, and we're building for them.
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  Speaker 4: But we also think this can be a product that
• 12:20
  Speaker 4: can serve the serious money of millions and millions of
• 12:25
  Speaker 4: people and be very mass market. And we believe we
• 12:27
  Speaker 4: can do that with the same brand.
• 12:30
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