Robinhood is an app that gamifies investing in stocks, ETFs, options, and cryptocurrencies, all commission-free. While the app is commission-free Robinhood made $1.81 billion in total revenues in 2021, primarily based on transaction-based revenue which represented over 77% ($1.4 billion) of the company’s overall revenues. Transaction-based revenues primarily includes payment for order flow from routing customer orders for options, cryptocurrencies, and equities to market makers.
|Transaction-based revenues||$1.4 Billion|
|Net interest revenues||$257 Millions|
|Other revenues||$155.9 Millions|
|Total Revenues||$1.81 Billion|
|Net Losses||$-3.68 Billions|
|Transaction-based revenues breakdown||2021||%|
|Robinhood Key Financial Stats||2019||2020||2021|
|Net Cumulative Funded Accounts||5.1 Millions||12.5 Millions||22.7 Millions|
|Monthly Active Users (MAU)||4.3 Millions||11.7 Millions||17.3 Millions|
|Assets Under Custody (AUC)||$14.13 Billion||$62.97 Billion||$98 Billion|
|Average Revenues Per User (ARPU)||$65||$108||$103|
|Founders||Vladimir Tenev & Baiju Bhatt|
|Year Founded||April 18, 2013|
|Year of IPO||7/28/2021|
|Total Revenues at IPO||$958 Millions|
|Total Revenues in 2021||$1.4 Billion|
3,800 full-time employees as of December 2021
|Revenues per Employee||$369,039.47|
- Robinhood business model short breakdown
- Robinhood business model today
- Quick intro to Robinhood
- Breaking down how Robinhood really makes money
- When a company becomes a synonym of buying stocks
- Handling hypergrowth
- Robinhood and the meme economy
- Robinhood’s IPO
- Wall Street As Main Customer
- Doge Represented Most Of Robinhood Growth For Crypto Assets
- Who Are Robinhood Customers?
Robinhood business model short breakdown
|Robinhood Business Model||Description|
|Value Model: Democratize Investing.||
Robinhood’s mission is to “democratize access to the American financial system.” They do that via a gamified investment platform which is easy to set up and use with no commissions (customers are routed to market makers who earn Robinhood payment for order flow commissions).
|Technological Model: Asymmetric Platform, Two-Sided Network Effects.||
Robinhood leverages two-sided network effects, where the more free users join the platform, the more it becomes attractive to market makers, thus prompting the platform to add a growing number of assets quickly. While Robinhood is primarily free for users, it generates revenues by routing customers to market makers and getting commissions for that. That is the mechanism of the so-called “payment for order flow.” That means that market makers are the primary customers for Robinhood.
|Distribution Model: Branding/Product Development/Growth Hacking, Deal Making, Lobbying.||
For Robinhood to keep growing, the company needs to invest massive resources back into its platform to enable a larger and larger number of users to invest on top of it. The company also invests substantial resources in branding campaigns, securing distribution deals on various platforms, and keeping its app’s rankings high across the Apple and Android stores. In addition, since Robinhood operates in a highly regulated sector, it needs to be able to keep close ties with regulators in the financial sectors (this is why Robinhood has internalized various lobbyists profiles in the last 2-3 years).
|Financial Model: Payment for Order Flow.||
While Robinhood is free for users, users transacting on Robinhood are routed to market makers, thus earning the company commissions for this trading activity, facilitating liquidity through various markets. In 2021, for instance, Robinhood made most of its money from the payment for order flow related to options and cryptocurrencies (and within cryptocurrencies primarily with Doge).
Robinhood business model today
While Robinhood’s app is free, and it makes it easy for users to invest, it does make money in an asymmetric way. In fact, the company makes money on the transactions placed by its users, not by charging a commission, but instead by the so-called payment for order flow (“PFOF”).
Indeed, transaction-based revenues (which represented over 77% of the company’s revenues in 2021) consist of amounts earned from routing customer orders for options, cryptocurrencies, and equities to market makers.
As the company highlights, when customers place orders for options, cryptocurrencies, or equities on Robinhood, the platform routes these orders to market makers, receiving a commissions from them for creating market liquidity.
When it comes to equities and options trading, these fees are known as payment for order flow (“PFOF”).
When it comes to cryptocurrency trading, those are called “Transaction Rebates.”
When it comes to equities, the fees are based on the publicly quoted bid-ask spread for the security being traded.
For options, the fee is on a per contract basis based on the underlying security.
In the case of cryptocurrencies, Robinhood’s rebates are a fixed percentage of the notional order value.
Robinhood’s revenues, in 2021, were primarily driven by options and cryptocurrency trading.
While Robinhood supports various cryptocurrencies for trading, during the second quarter of 2021 and for the first, second, and third quarters of 2021, transaction-based revenue attributable to transactions in a single cryptocurrency (Dogecoin) generated approximately 7%, 32%, and 8% of our total net revenues, for each quarter!
Quick intro to Robinhood
- Robinhood Gold, a margin trading service, which starts at $6 a month
- Earn interests from customer cash and stocks, just like a bank collects interest on cash deposits
- And from rebates from market makers and trading venues
Robinhood’s claimed mission is to “democratize access to the American financial system.”
Indeed, Robinhood’s primary value proposition is fueled by an investing platform that lets you buy and sell stocks, exchange-traded funds, options, and cryptocurrencies, all commission-free. As its mission is to democratize the financial system, this goes through three main elements of the platform:
- Made for all investors–newcomers
- And convenient also to experts (even though that is not the primary target)