Failory - How Does Robinhood Make Money?

Hey — It's Nico.

This month, I'm publishing articles analyzing different startups' business models. This week, we explored How Robinhood Is Making Money.

🙌 Welcome to the 495 founders who joined this week.

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What is Robinhood? The company offers a mobile trading app for iOS and Android devices and a browser-based platform.

They give investors the option to buy and sell traditional stocks, exchange-traded funds (ETFs), options, American depositary receipts (ADRs), and cryptocurrencies (in certain geographic locations).

How was Robinhood started? Robinhood was founded in 2013 by Vladimir Tenev and Baiju Bhatt, who met while studying at Stanford University.

After launching two previous fintech startups and selling trading software to hedge funds, the two came up with the idea for Robinhood as a way to democratize trading for everyone.

The idea arose from the discovery that large Wall Street firms pay basically nothing to trade millions of dollars in financial products, while individual traders were paying hefty commission fees on even the smallest of trades.

If you're interested in learning further about Robinhood's beginning story, check out the article.

How does Robinhood make money? They have five main channels:

1. Payment for order flow: Robinhood sends users’ trades to different market makers and trading venues that execute them. In order to compete with exchanges, these market makers and trading venues pay brokerages (in this case, Robinhood) through rebates for sending them buy/sell orders.
2. Gold subscription: Robinhood offers a premium account membership program called Robinhood Gold, which costs users $5 a month. It provides access to additional investment tools and benefits, including Morningstar research reports, NASDAQ Level II Market Data, and margin investing at discounted rates.
3. Interest on margin and securities loans: Margin loans are funds Robinhood gives investors on the platform, so they can invest in more securities than they have funds available for. Robinhood charges users who invest on margin 5% interest on total margin loans above $1,000. Robinhood also earns money from lending securities to counterparties.
4. Income generated from cash: Like all financial companies, Robinhood also earns a small income from uninvested brokerage cash, which they deposit into interest-earning bank accounts.
5. Interchange fees: Robinhood offers users debit cards through the Robinhood Spending Account program. Whenever users make payments using the card, Robinhood makes a small amount of money on interchange fees, which are basically transaction processing fees charged by card providers.

How much money does Robinhood make? Robinhood generated $1.81 billion in revenue in 2021, representing a 90% year-over-year increase from 2020, when the company reported a total revenue of $0.95 billion. For the first two quarters of 2022, Robinhood reported revenues of $299 million and $318 million, respectively.

Is Robinhood making a profit? Despite its growing revenue and use base, Robinhood is not yet profitable. The company’s net loss for the first quarter of 2022 was $392 million, and for the second quarter, it was $295 million.

How much money has Robinhood raised? The company has raised $6.2 billion in funding over 27 rounds. The latest funding round took place on May 13, 2022, and was a Post-IPO Secondary round.

What is Robinhood’s ownership structure? Robinhood is a publicly-traded company, with institutional investors owning approximately 33% of shares in the company. Private individual investors from the general public own about 52% of Robinhood’s shares.

Robinhood’s co-founders, CEO Vlad Tenev and CCO Baiju Bhatt, are minority owners, holding an estimated 10% or so of Robinhood’s shares together. Robinhood’s largest shareholder is Index Ventures SA, with 9.9% of shares in the company.

How much is Robinhood worth? Robinhood has a market cap of $8.65 billion. Compared to its valuation of around $20 billion during its IPO in 2021, the company has taken a sharp dive in value since going public.

Once again, here's the article. If you're interested in learning further about Robinhood's business model and financials, give it a read ;)

Last week we analyzed the business model of Vinted, the clothing exchange marketplace. You can find the post here.

As every week, here are 3 recommended resources:

• ​The Growth Newsletter: One of my favorite newsletters lately. Every week, they share 3-4 actionable growth tactics, as well as links to marketing news and exclusive deals.
• ​Lessons from my Failed Startup: Francisco Javier Arceo built a personal financial management tool called Unidos. After 3 years, the business failed. In this article, he shares all of the mistakes he made so that you can avoid them.
• ​Employee-VC Alignment: Nikhil Basu Trivedi is co-founder of Footwork, an early-stage VC firm. In this article, he shares his thoughts on the recent shift in the power dynamics of venture-backed startups towards employees.

Hope you enjoyed this week's article and curated resources ;)

Cheers,

Nico