Robinhood: Trump sends "grace of rebirth," retail investors return with dominance

The American influencer retail brokerage Robinhood $Robinhood.US achieved performance in the fourth quarter that can be called the "return of the retail king"! From customer acquisition, trading, and monetization to profits, it has almost all reached peak levels since its listing in the second half of 2021!

1) Virtual asset trading skyrocketed: After Trump's election, the issuance of tokens surged, and virtual assets skyrocketed, leading to a 733% increase in Robinhood's virtual asset revenue! With strong trading demand, the monetization rate has also risen. Despite the trading volume being known to the market in advance, the revenue from virtual asset trading still significantly exceeded market expectations;

2) Both customer acquisition volume and efficiency are strengthening: While revenue soared, customer acquisition increased by 900,000 in a single quarter; at the same time, marketing expenses did not significantly spike, and the customer acquisition cost per user has notably decreased, making customer acquisition more economical in a bull market.

3) Overall cost control on the expenditure side is evident: A regulatory settlement reduced administrative expenses by $50 million, leading to a virtual decrease in administrative costs. Adjusting for this item, the actual overall expenditure is basically in line with market expectations.

4) Significant release of operating profit: Revenue benefited from the trading enthusiasm brought about by the surge in virtual assets, and key expenditures—customer acquisition costs—did not significantly increase despite a substantial rise in new users, leading to a very noticeable release of operating profit: $560 million in operating profit, even after removing the $50 million accounting adjustment, the $500 million profit still far exceeds the market expectation of $400 million.

5) Net profit soared, but with high water content: The company reported a net profit of $870 million, mainly due to deferred tax adjustments, which is somewhat misleading; the key is still to look at operating profit.

6) Performance overview is as follows:

Dolphin's Viewpoint

Driven by the bull market in virtual assets, $Robinhood(HOOD.US) has seen explosive revenue while strictly controlling the cost per customer acquisition, which indeed deserves a big thumbs up.

However, compared to the several medium to long-term core issues mentioned in Dolphin's last earnings report regarding the market under the "artificial bull" of Trump's related virtual asset regulatory direction:

"a.) The old model of customer acquisition has peaked; b) The operational revitalization capability under the current monetization layout of existing assets and users is insufficient; c) There is no real second business curve."

Will this quarter's Robinhood earnings report affect changes in long-term expectations? In Dolphin's view:a) Growth potential: This small surprise came during a bull market environment, where the company was still able to gain a significant number of users—whether it was the bull market driving this or if there is indeed still penetration space remains uncertain;

b) On the second curve issue: Last November, it acquired a backend custody and clearing technology service platform for a service advisory and wealth management institution, but the second curve has not yet fundamentally emerged.

c) The impressive performance this quarter reflects more that, in terms of existing assets and business layout, the asset activity has strengthened due to the bull market, and its light asset model combined with expenditure control capabilities has further amplified its profit creation ability.

In the medium to long term, aside from Trump raising the certainty of its virtual asset business, the long-term logic of stock options and interest-bearing businesses within existing operations, in the view of Dolphin Jun, does not represent a fundamental change in long-term logic.

Therefore, the current surge is more of a bull market Beta-driven trend, and its retail platform and super light asset operation attributes lead to a more exaggerated profit amplification effect when revenue expands.

Dolphin Jun extrapolates from a bullish perspective: In the coming year, the bull market driven by virtual assets continues, converting the fourth quarter's $1 billion revenue directly into an annualized revenue of $4 billion for the next year; at the same time, based on a 50% actual operating profit margin in the fourth quarter, half of the revenue is converted into profit.

The current market value is close to $50 billion, corresponding to a PE of about 25 times for the company in 2025. According to the company's long-term double-digit growth guidance, this seems reasonable.

However, it should be noted that this so-called reasonableness is based on the assumption that the market continues to improve (which is difficult to predict in reality). Fortunately, in the ultra-short term, according to the information described by the company in the conference call:

"In January, the net user inflow reached the second highest in company history; the trading volume of stocks, options, and cryptocurrencies achieved double-digit to triple-digit growth compared to a year ago, with options trading volume hitting a record high."

Based on this statement, it can be roughly estimated that Robinhood's operating situation in January should have slightly declined compared to December, but it should be significantly stronger than the average value of the fourth quarter (as the virtual asset market had not yet risen in October).

Overall, the current valuation somewhat prices in the continued bull market valuation of virtual assets; to rise further, under this major Beta-driven stock price surge, it depends on whether the market led by Bitcoin continues to be hot, or whether the Trump family can lead a frenzy of coin issuance that significantly boosts the trading scale of virtual assets.

Of course, the certainty of short-term performance may still drive the company's stock price to show sustained upward elasticity in the bull market.

The following are the details:

1. Trading business: Trump's savior, virtual assets explode

1) The most magical—virtual assets

First, let's talk about the greatest contributor—virtual assets: In the month of Trump's election victory—November 2024, Robinhood's virtual asset trading volume skyrocketed from around $5 billion in previous months to $35 billion, and in December, it still exceeded $30 billion, with a monthly increase of 7 times in trading volumeHowever, this figure, including the Daily Average Revenue Trades (DARTS), is disclosed by Robinhood month by month and does not represent any new information.

What was unexpected in the market but within the situation is that, in addition to Trump's election (which encouraged deregulation), the surge in virtual assets not only fueled retail investors' trading enthusiasm but also led to a sevenfold increase in trading volume month on month. As a trading intermediary, Robinhood's supply tightness has significantly enhanced its ability to take a cut from each transaction and each order amount.

In the fourth quarter, Robinhood's revenue from virtual asset trading increased the monetization rate from 1.4% to 1.5%.

2) From Point to Surface: Equity Trading Has Also "Come Alive"

In addition to the booming virtual assets, the trading enthusiasm for small-cap stocks brought by Trump has also boosted Robinhood's stock and options business.

In terms of the activity of underlying assets, the turnover rate of user stock trading in the fourth quarter (the trading volume of stocks compared to the average balance of user stock assets over two periods) directly increased by nearly 30% month on month, reaching 3.57 times. This figure has been hovering around 3X since 2022, showing little elasticity.

In terms of the monetization rate of stock trading volume, although it slightly increased to 0.00144 in the fourth quarter, it is still on a long-term downward trend.

On the contrary, the mainstay of trading-related income—the high-monetization options business—performed relatively flat this quarter. The average daily revenue per order increased by 11% month on month, while the revenue per option increased slightly by one cent to $0.47.

2. Efficiently Acquiring 900,000 Users, the "Growth" Version of Robinhood Makes a Rapid ComebackNot only did the income side experience explosive growth due to the popularity of virtual assets, but the user growth in the fourth quarter also showed signs of the company regaining its former glory.

In the fourth quarter, the number of net new asset users reached 900,000, marking the highest single-quarter peak since the company went public in July 2021. Moreover, with an average deposit amount of $18,000 for new users, Robinhood has entered a comfortable zone for customer acquisition—its foundational customer base of retail investors in the U.S. stock market.

Additionally, in terms of new user segmentation, not only did the number of new users double compared to the previous quarter, but the activation of dormant users also increased, and the churn rate of existing users decreased. These detailed inflow and outflow data indicate that the hot market in the fourth quarter has been a boon for Robinhood!

Due to the hot market, users spontaneously opened accounts and returned to trading. As a result, Hood's customer acquisition cost this quarter has automatically decreased.

In the fourth quarter, the customer acquisition cost per new deposit user for Hood （PS: Dolphin's calculation standard is "marketing expenses + operating expenses excluding credit losses"） fell to $139 per customer, the lowest cost since the second half of 2021.

3. Interest-bearing business: acceptable, but not impressive

In the fourth quarter, interest income was $300 million, a slight increase of 8% quarter-on-quarter, which is significantly weaker compared to the overall 111% growth in trading-related income. The total interest-bearing assets increased slightly, but due to the declining interest rate environment, the growth of interest income was not significant.

1）Financing business: Among various interest income sources, although financing assets have grown—from $5.5 billion in the previous quarter to nearly $8 billion—due to the decline in interest rates on borrowed money, the growth of comprehensive financing income, which is the primary source of interest income, was not significant.

2）Securities lending business: Conversely, the securities lending business saw better growth, with a quarter-on-quarter increase of 20%. This income is divided into two parts:

a. One is the collateral that users provide to Robinhood when borrowing securities (part of isolated cash), and the interest generated from this collateral belongs to Robinhood;

b. An additional markup based on the tight supply and demand for securities, similar to borrowing interest.

In the fourth quarter, despite the declining interest rate environment, the company's securities lending yield did not decrease, maintaining a level similar to that of the third quarter. Thus, the increase in financing balance during this bull market season was fully converted into incomeMoreover, the revenue from the securities lending business is calculated based on net interest margin (interest costs only incur when the securities source is borrowed from users by Robinhood; even in this case, the interest rate given to users is very low, and the interest costs can be ignored). Excluding credit losses from expenses, it has a 100% pure profit margin.

4. Customer acquisition costs are controllable; more revenue means more profit

Under high valuations, the market's expectations for Robinhood's profit growth come from two aspects:

First: Continue to acquire customers and increase AUM. Previously, this logic was on the verge of collapse, but user growth returned in the fourth quarter, which gives Robinhood some valuation premium.

Second: Developing high monetization businesses—such as interest-earning businesses—allowing new revenue to convert to profit at a higher ratio, thus increasing profit margins.

In the fourth quarter, amidst a booming virtual asset market, the company quickly ramped up user recovery and trading activity; however, the growth of high-margin interest-earning businesses was not particularly significant.

However, in terms of expenses, the hot market increased revenue elasticity, but corresponding customer acquisition costs, trading costs, etc., did not rise, indicating excellent overall control of internal expenses.

It should be noted that the administrative expenses of $70 million seem significantly lower than the expected $140 million and the previous quarter's $130 million+, but there is a $50 million regulatory settlement that led to a provision reversal.

Even excluding this impact, the conversion rate from new revenue to new operating profit in the fourth quarter was still 94%, which is relatively high in recent times.

The result is that the company's operating profit margin (excluding the impact of the provision reversal) directly increased from around 25% to 50%, with profit margins rapidly stepping up.