Name: Brainstorm Tech 2024: Robinhood Trades Up
Uploaded: 2024-07-16
Duration: 19 min 17 s
Description: Vlad Tenev, Co-founder and CEO, Robinhood Interviewer: Alyson Shontell, Fortune

Vlad Tenev, Co-founder and CEO, Robinhood Interviewer: Alyson Shontell, Fortune

Brainstorm Tech 2024: Robinhood Trades Up

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All right, glad. Thank you so much for joining us today. As Ali mentioned, 11 years at the helm of Robin Hood and so much has happened at that time. We were just lamenting that we were the geriatric millennials in the room. We actually are both DC area kids graduated high school, I think the same year and yet you are running a giant company called Robin Hood in 2021. It was hard, really, really, really hard to be the CEO of your company. There was gamestop mania and roaring kitty mania. You had to raise $3 billion in 36 hours to meet trading demand. You had to freeze trading for a little bit. Customers were angry. You got interviewed by a OC. You got interviewed by Elon Musk movie was made. You were not portrayed great in the movie. So that's crazy to live through as a CEO. I just want to hear from your perspective like how hard was that period. Uh Let's see. Um I think one of my weaknesses, uh you know, uh I haven't had a job interview uh in a while but uh sometimes I think through what I would answer these questions that, like I asked people and, uh, I've heard it described my, my weakness, which I think can also be a strength. Our strengths are our weaknesses. Um, I have like this pathological steadiness so I, I might not like emote very much. I don't get very excited about things. Uh, I don't get like, terribly distraught about things, um, which can, like, really be off putting to people in some ways. But I think can be the strength because like, when you're going through a crisis, I just like, yeah, you know, and it probably started out for me being uh an immigrant and my parents came to this country uh when I was very young and I was a latch key child. Um like some millennials now, people can't imagine, you know, having their kids go home from the bus stop half a mile and being home alone. But both my parents worked, we had no option. And so um I don't know that my childhood was like, not easy and there was this constant threat of like, if we don't make it in this country, we'll have to go back to Bulgaria where there's hyper inflation and, and so it was just like a constant struggle. So I think when gamestop cared for that and you actually, because though of like, what if my me, what Hollywood typecast guy came in and the CEO of Robin Hood and that's, that's hard self reflection to do. And what did you come away with? How did the company change after that? Yeah, I think that's a good, uh, yeah, I mean, it, it wasn't like, um, it wasn't so much thinking about the board doing that but more, um, yeah, this was like 2022 when things were rough and I think everyone just, uh, thinks about, like, the gamestop era and COVID and, and that being the toughest moment in my experience running Robin Hood, I actually think in a lot of ways 2022 was, was harder. The entire market turned, we went from like zero rate environment to high interest rates, highest inflation we've seen in decades. Um People just weren't interested in trading stocks uh anymore like that became uh undesirable and a lot of capital moved away from uh sort of like the higher risk equity markets to lower risk bonds and just like collecting yield on cash. And so Robin Hood's business had to fundamentally change in order for us to stay relevant and kind of thrive in this new environment. And, and that was very tough. We had to make a lot of tough decisions. Um You know, the, the company was carrying too much head count. We had to like refocus, we, we had a lot of bets um in various directions during COVID, we had to really refocus on the core business. Um And yeah, what I found was useful was um and I you know, everyone says don't talk about the stock, but our stock hit a high of like 75 in 2021 and then traded below $7 you know, a year later. So that, that was tough for uh a lot of people. And, and so I think, like, self reflection and asking yourself well, if I wasn't here and they brought in a CEO from Central casting to like, get this company on the right track, what would they do? And I think this was useful for me to go through because there's a lot of decisions that we hold on to because we made them earlier, right? And you, you don't wanna appear inconsistent with your earlier self. And so you can end up kind of holding on to the wrong decision for a while. So one example was we announced we were a remote first company in January of 2022. We had kind of like hedged our position on this for a couple of years. We were telling employees, hey, just wait after we get a little bit more clarity on this COVID situation. Um You know, we'll, we'll kind of announce what our full time, what the future of work looks like full time. And in January 2022 I kind of got tired of, of having this debate and kind of all the signals around me were we should go remote first. The market is demanding it. There's a war for talent, the best talent wants the flexibility. So we announced it and I kind of immediately regretted it. Um But at the time, it felt like a very difficult thing to pull back companies who hadn't announced that were having a hard time getting folks back into the office and, and normalizing that. Um So, yeah, that, that was an example of one of those decisions where I was like, ok, if, if someone came in with like fresh eyes, kind of without the burden of being consistent with decisions you made six months ago, um they probably make this change. And so that, that I think uh unlocked a lot of me and that, and, and that deep self reflection, I think uh allowed us to go down the list of the 10 things that had to change about the company very, very quickly to not just survive but thrive in this new environment of higher rates, less interest and more speculative equity investing. Um And, and I think that really accelerated Robin Hood's transition um into being uh uh a public company. And so the stock today is 28. So not quite at that 75 high, but way up from sevens. And also you had really good recent earnings. I want to point out that this time last year, this quarter, last year is a net loss and your net income is like 157 million now. So quite a swing part of that, I think has been, you know, a better interest rate environment and a lot of income interest cash. But you've also gone to pains to really diversify a bit more away from the hyperactive trading. Um, that has been the core of the business. I'm curious how some of those that have like diversifying your business model, how those efforts have gone. You've launched a credit card, there's retirement options and a lot of that has just rolled out this year. So what's that doing to the business? And how are those early products going so far? Yes, when we kind of like uh re articulated the the strategy in 2022 and kind of like re founded the company, we did a couple of things and um I think what made it hard was the, the top two priorities were like somewhat diametrically opposed. So the first thing that we did was we, we actually really focused on the core of the business and the core of the business is active traders. Like it's what has generated a bulk of, of our revenue. It's where we had a sustainable technology advantage. Um And we had kind of ignored that market um during COVID, um we're focusing on the new investor market. So we weren't really looking at someone that trades a lot and is a little bit more sophisticated. What their needs with the product are we were looking at? Ok. How can we on board as many first time investors as possible and streamline the experience for them and you know what, once they have their account funded and they're on boarded, we, we sort of like stop the investment so much. Um And so that manifested itself in this weird thing where the more active uh a customer you are of Robin Hood and the more revenue you generate from the firm, the less happy you are with our service, which is sort of like the opposite. Um The opposite of what you want. You want your most engaged, most active customers that are generating the most revenue uh to be happiest. So that was kind of the pathology. And there in lay, the first goal, the first goal was we want the more active you are the more engaged. Um We the, the happier you should be with Robin Hood, the more of a promoter, um you should be and within a year we actually reverse that. So, and that required changes on all levels of the company. Uh product, road map technology infrastructure, we started caring more about latency and performance customer service. Um And this was a tough one because um basically in the past, if you were a customer that had millions of dollars in your account, you were in the same queue as every other customer, right? So you could be waiting, you know, a really long time to get service and we had to sort of like recalibrate our service model so that the customers that had the most money in their accounts, the customers that had the most sort of like specialized needs, they were actually getting the, the level of support that they needed. Um And that was a tough one because a lot of people say, hey, Robin's mission is to give everyone equal access. So, you know, if you're a gold member, is it really fair to, to sort of like uh uh prioritize that person? And I mean, the, the obvious argument is we don't have a business unless our most active customers are really, really happy. That's sort of the foundation that drives everything. And so giving that all of the investment that it needs from all angles just was, was very important. So that, that was one thing, but simultaneously, we also didn't wanna be an active trader business. We wanted to, uh we wanted to diversify the business. And also we saw an opportunity for um for us to do more than just help people with their discretionary trading. Um And that's where we launched the high yield product where now you can get up to uh 5.5% interest on your cash. And that's uh we, we announced a recent number where $20 billion had entered that product. Uh Since it started, we, we launched our retirement product which um I mean, in my opinion, just from the, the economics and the user experience, it's the leading retirement product. So, um you get a built in match which you had to have an employer sponsored 401k to get in the past and it's the first retirement product to my knowledge to win a design award. Um So it's just like applying the Robin Hood recipe from active trading into more passive products. I think the, the, the credit card is just an extension of that too. We launched a credit card 3% cash back on all categories. You can't get anything close to that unless you're a high net worth individual at like a fidelity. Um And, and even then they won't give you a solid gold card that's, that's unique to us. Um So what even with those efforts, the the average account size is so, so you have, I think you get a lot of credit that you deserve for helping democratize finance and investing because if you look at the numbers, your average age is 34 versus 59 for typical brokerage. 14 to 16% of your users are black or Hispanic versus 4 to 8% is a typical. Um but the average account size has been stuck at like 5 to 7 K for a couple of years now. Um So that kind of leads you to believe like are these are the user too young to really make a big business, to grow into the leading person of the owner of all the wallets. Um How are you gonna unstick that? And I'm also curious, like, you are probably your, the person you would love to have on Robinhood. How much of your accounts are in Robin Hood themselves? Do you have more than that? 5 to 7 K personally? I, I do. Yeah. Um, but every time, like, like is like 80% like, I mean, what, what's the optimal and what's yours? Well, my situation is a little bit different because, um, I can't really trade, uh, because, yeah, it's unfortunate but, like, at, at some point I stopped being able to use my product for equities. Of course, I can hold ETF S and crypto and things like that. Um, but yeah, the lion's share of my worth is in Robin Hood stock. That's like, uh, but to my point is being that, like, people, like, have a, there's a graduation risk, right? If you have a play account sort of, that's Robin Hood, you might be in like Chase or something that's more established, that's a legacy firm. Um, so how do you get over that? Yeah, I mean, my, uh, my aspiration over time is for, uh, people like me also to have all of their wealth in, in Robin Hood and that's sort of like the, the, the sort of like upper end of the market, right? The folks that are working with family offices and they have private wealth managers, I think to, uh, to a large extent that's what Robinhood Gold is like Robin Hood Gold subscription. Yeah, long term aspiration is to replace your wealth manager so that, you know, anything that you can get as a high net worth individual from a wealth manager and a private bank can be accessible to anyone at a price point of around $5 a month. Um So that's the goal we obviously didn't start there. We started sort of like mid market, but we have been moving up. And for example, if you look at the credit card, it's a premium credit card. It's my primary credit card that I use for all of my spend. So I think over time you'll start seeing, uh you'll, you'll start seeing us moving more upmarket and the average account size has been increasing. If you look at uh assets under custody and deposits onto the platform that's been growing at, you know, uh 40% year over year, much higher than all of our peers. Um And granted we're much smaller from an asset base. But um I mean, one interesting stat, if you look at millennials, uh there's more millennials on Robinhood than Schwab Fidelity E Trade and Vanguard combined. And uh what we believe is over the next few decades, there's gonna be a massive wealth transfer. It's starting to happen, but it's, it's gonna accelerate of trillions of dollars, tens of trillions from baby boomers to gen X to millennials. And I think Robinhood can be uh the largest beneficiary of that. And we're putting ourselves in a position to do that. So we're making it really, really easy to transfer your account to Robinhood from a user experience standpoint incentives and feature set. Um, we're expanding to all sorts of products. And so I think we'll have that tail wind and, um, we already have the relationships with these customers. And I, I think that, uh as they get wealthier as they inherit more of the generational wealth and as we add more products, I think those trends should not just continue but accelerate. So you own your full tech stack. So to n and there's two trends that you think are really going to transform the industry even further to A I and crypto and you've been making some acquisitions in those places. I'm curious if you could just talk a little bit about how you think they're going to be really transformative and how are you preparing Robin Hood to capture that to become the place that all the millennials are putting all their money in the future? Yeah. Um I'll start with crypto. I think when a lot of people hear crypto, they sort of like gravitate towards meme coins and speculation. Um And I think there's, there's a part of the crypto markets that that's that certainly and it draws a lot of attention. But I think what we have the benefit of seeing because we sort of like have both of these businesses, right? And we can see them side by side and we now can look at crypto in the eu brokerage in the UK as well is the cost of running a crypto business is like an order of magnitude lower. Um because you get to leverage so much of the public infrastructure and these public blockchains do a lot of the heavy lifting when it comes to settlement and transactions um that there's just like a obvious technology advantage in putting more and more stuff on that infrastructure. It's kind of like going from mainframes to on premise to cloud. I think the next transition for financial services will be more and more of these things are gonna go on blockchains and more traditional, more of what we consider kind of traditional financial products will be traded and custody on blockchains as well. And you can to some degree see this with dollar stablecoins overseas. Um The bulk of transaction volume on Crypto Rails is dollar Stablecoin right now. And the reason is overseas, people want dollars and the easiest and most straightforward way to get them is through some of these Stablecoin products and you don't have to squint too hard to imagine a world where stocks are on blockchains and are tokenized, other assets like fixed income are there as well. And there's like a view of crypto as a technology layer that's gonna be really accelerated once people understand that there's just like a huge efficiency advantage. Um And, and so I think that's interesting. I think that will become increasingly clear and Robin Hood can be a leader there. And then, uh A I also has the potential to fundamentally change financial services. And I think what you're gonna start to see in the near term is customer support, which is a gigantic and deep market, um, which is kind of one major way in which consumers engage with financial services providers. Um You're gonna start to see that increasingly uh done by A I and on the other side of the spectrum, you have private wealth managers. Um And I think in the future private wealth manager, private banker, investment advisor, those will all be A I enabled and I think that that's going to be a hugely transformative force and it will lead to more people being able to access these services that otherwise would be reserved for high net worth individuals. Awesome. Well, Vlad, we look forward to continuing on your journey and watching you in action. Thank you so much for being with us here at brainstorm Tech. Thank you.