Robinhood CFO on Retail IPO Demand, Agentic Trading

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0:15 One big story, again, for us is Anthropic, disclosing a 12-fold increase in quarterly revenue while revealing that it intends to spend more than $ 895 billion in the years ahead as the AI Lab courts investors for a potentially record-breaking IPO. On that, we actually wanted to check in with the CFO of Robinhood. Shiv Verma is with us, joining us from Menlo Park, California. Shiv, good to have you here with us. Got to start, though, so many things going on, and we'll get to maybe the elections and the regulatory framework coming at everybody. But let's start with the mega IPO environment, all of them coming at us, Anthropic, OpenAI, some others.

0:55 How Robinhood will be involved?

0:57 Either in making sure their retail customers get access or in some other way. So I'd love to know how you guys are looking at that and how you're providing access for these really mega IPOs.

1:10 Yeah, first, great. Thank you for having me. As you mentioned, Anthropic is coming. It's going to be a bellwether for the market. You may have seen they actually amended their S1 recently, and it showed that Robinhood will be on the deal. So we're very excited to help customers get access. You know, if I go back to SpaceX just six months ago, it was a historic IPO and now you have Anthropic coming in futures. And so for us, the main thing is retail customers should be allowed to participate.

1:31 They should have a great experience. And that's what we've been building thus far.

1:34 What does that look like in terms of like an allocation for these retail investors? How do you make sure that the retail investors who do want a piece of Anthropic's IPO get a piece of it?

1:45 Yeah, it's an incredible question. What we do is we bring the demand and then we send it to the company and the banks. Ultimately, they decide what retail should be allocated. For us, we just asked to treat it as a first-class citizen. So if you looked at SpaceX, they actually came out and said they wanted to do about 15% to 20% to retail. When we did our own IPO, we gave 20% to retail, which at the time was the highest in history. And so if we bring great demand and we show them the power of retail, that's how you get a good allocation. It is tough, though.

2:13 It's a food fight out there. So we're going to let our demand speak for itself and then let the companies decide for what they think is appropriate.

2:18 Is there a way you can gauge demand right now before– the actual IPO happens? Do you have an understanding of what these retail investors, what the folks on the Robinhood platform want to see in terms of Anthropic?

2:29 So we're not allowed to directly start taking orders until they start doing that. But what we do see is what are customers doing right now? So I shared in our earnings last week, we're seeing incredibly strong engagement. Customers are depositing more, they're trading more. Most of our metrics were up 50% year over year. So that's what we're sharing with a lot of the banks and a They're technical optimists. They tend to believe in this economy. And so with that, I think it bodes really well, but we'll have to see when they actually open the order book up.

2:56 Hey, Shiv, you talked about allocation for something like the Anthropic IPO or maybe some of the other mega AI, like open.

3:02 AI coming up.

3:04 What do you expect in terms of allocation? You talked about what you guys wanted to do when you IPO'd. Are you talking with Anthropic? Are you getting any insight on what the allocation might be for those on the Robinhood platform?

3:19 Yeah, so we're in the quiet period, so we can't share specifics. But what I'll tell you about five years ago when we built the platform, traditionally retail got 1% to 2% of an IPO. And if you got 5%, that was fantastic. Now when we talk to companies, they say, hey, how big can I go? Can I go to 5? Can I go to 10? Can I go to 20?

3:36 And so that's becoming more of the normal conversation. If you look at the U.S. equities market, about 20% to 25% is retail on any given day. And so just using that bar that shows how powerful retail is Each specific company and each individual bank will give their own recommendations. But for us, what we're making sure the companies know is retail is here. They are forced to stay. And given their 20% to 25% of the equities markets, they should consider a large allocation to retail.

4:01 So can I read into that that you think it might be more like 5% versus 1% to 2%?

4:08 Again, I can't share or give it in the quiet period. And so I want to be really careful on that. For us, we just think it's important that they're treated as a first-class citizen. And then ultimately, again, I've sat in the company's shoes. We've done our own IPO. But I do think retail is really powerful. And if you treat them well, they become long-term supporters of the equity.

4:25 Okay, I want to shift gears a little bit and talk. This still has to do with AI, but it's about AI agents such as Muse, for example. One thing that we're all trying to figure out right now, and we're asking everybody these questions.

4:35 How do you want.

4:37 Muse or other AI agents to interact with your platform? What are you doing at Robinhood for agentic buying and selling of stocks, for example?

4:46 Yeah, great question. So For us, we believe in access and selection. So our view is any of these different connectors, whether it's Muse or Grokbot or Instinct or the whole gamut that are coming out now, Dots and DoIt and Anthropic, we believe Robinhood should connect to there and customers should have access through those tools. What are we doing for our first party? So we did our own product launch a few months ago, and we announced Robinhood Agents. You can go into the app. You can have an agent do trading for you. You can do research for you.

5:16 We think that's great. But if customers also want to access to these third-party connectors, fantastic. Again, we stand for access. And so I think some of the companies are being a little short-sighted when they say, hey, I don't want to connect to this app or I want everything go through mine. What we've shown is if you just build a great product and you let customers access it wherever they want, good things will happen. And so we're super excited.

5:37 And we're already up in a lot of these different connector stores. And you should expect us to be available in the vast majority of them in the near term.

5:43 How are the agents, whether it's outside agents or your own Robinhood agents, kind of increasing activity and volume, if you will, or engagement on the platform? I'm just curious how that actually turns into actions.

5:54 Yeah. So it's really early right now, but the signals are positive. And so what we're seeing from customers is they love using it for things such as research and tools. That's the vast majority of it. So For example, a customer may say, I have a view on AI stocks right now, or I have a view on chip stocks right now. Can you help me do screeners or scanners and go to that? You can also then allow it to trade for you. Now we make sure we build the guardrails in place. For example, your agentic trading account is completely separate from your core account. So if I open my app right now, I have my investment account, my retirement account, my custodial account for my daughter, then I have my agentic account. The agentic account is completely separate.

6:31 And then if it wants to make a trade, you have to give it permission to do that. So if you've used cloud code or codex, it can take you so far. But at the end, the customer has to take the intent. So that's what we're seeing from customers. They're actually asking for more. They want even more tooling.

6:45 They want it to be more powerful. You know, we share in our earning that about 200,000 people have a Gentica account and about 250,000. million of assets thus far. So really nice early growth. But for us, we're just chiseling the product and making it better and better. But we think this could be pretty large.

6:59 All right. We talked anthropic. We've talked about AI agents. You think that agentic trading could be pretty large or agents role on Robinhood could be pretty large. Let's talk prediction markets, because as you guys said earlier this year, it's among the fastest growing business at Robinhood. I'm curious about in terms of what you offer and what people are doing in terms of volume, how big is sports only as a business of the entire prediction market share that you offer at Robinhood?

7:27 Yeah, I actually shared some updated info on our earnings. So as of this quarter, about 30% is non-sports and that's up from 15% just a quarter ago. So we're already seeing customers use more and more non-sports items. What are they using it for? You mentioned the midterm elections. Those are really popular right now. Anytime we see pop or cultural events, they'll become more topical. We tend to see more usage there. Crypto, believe it or not, that's one thing customers are using for to express a view using prediction markets. We also announced that we're going to have KPI contracts, meaning that if you want to make a view on a particular equity, you can trade the stock, you can trade the derivative, or you can go in

8:04 and trade a KPI contract. So for example, how many iPhone duals will Apple ship?

8:09 Or how many.

8:09 Cars will Tesla ship? We think those are going to be really powerful, but it's definitely found product market fit, and we're already up to 30% non-sports. Sports are fine, and they're great. And if customers want to use it, that's fantastic. but we believe we're at the beginning of a prediction market super cycle. And as you add more assets and more selection, it'll make the product better.

8:29 We talked to a Charles Schwab CEO, Rick Worcester just last week about prediction markets. And he's made his view on, on the sports element of prediction markets. Very clear. He says they have no place in Schwab's app. Why do you think sports trading is an asset class or part of an investing menu?

8:46 Yeah, it's, it's a great question. Um, We always start with, is it a regulated product and is it allowed? Right now, we believe the CFTC regulates it and these products are available and so we should access them. Our view is if they're going to be available, we want them on Robinhood and we want to do it in the safest, most compliant way possible. After that, again, we stand for access.

9:08 Our mission is democratize finance for all. We don't want to be paternalistic. We want to make sure people have controls and safeguards for how they trade. But if it is a legal regulated product similar to anything else on our platform, we should offer it. And that's the same approach we've taken with sports.

9:22 Hey, so I'm curious about prediction markets.

9:24 If that's where you're seeing the most significant growth in terms of the platform, what can you tell us.

9:32 In terms of revenues actually coming in?

9:34 I mean, you can, you know, $ 1 to $ 2.

9:36 Is 100% growth.

9:37 But so I'm just trying to get an idea of the revenue breakdown that you're seeing when it comes to prediction markets specifically.

9:43 Yeah.

9:44 Yeah, it's now up to about a half a billion dollar run rate. So a little over 500 million ARR. And remember, this is only two years old. So we actually launched at the election two years ago in 2024. and now it's doing over $ 500 million in revenue. So great to see that. In terms of our overall base, we're close to $ 5. 5 to $ 6 billion of ARR. So it's less than 10% of our overall revenue, but it's continuing to scale really nicely. It's now in the hundreds of millions of dollars. It's great for customers. It's also really good for shareholders. And we're taking those cash flows that we're getting and we're reinvesting across a wide variety of other things at that point.

10:17 Shiv, what are the conversations you're having with Wall Street right now? I mean, following earnings last week, they did drop third quarter revenue and earnings per share, missing estimates. JP Morgan trimmed its price target on you guys, noting a decline. in customer engagement. So I'm just curious, stock's down about 24% year to date. So what is it that you're hearing from the institutional or investor base when it comes to what they're not so happy about?

10:44 Yeah, well, I'll start with what they are happy about. So what they absolutely love is the engagement on the platform, the growth in assets, and the product velocity. I mean, the secret sauce of Robinhood is how fast we ship. And so that's something we continue to hear over and over and over again. The things that customers and shareholders are watching are, is the growth of net deposits sustainable?

11:03 How is that going to grow? We said we can do 20% year over year, and we already passed that, but they want to see that continue to grow. They're watching what's happening in the elections. They're watching what's happening in the geopolitical risk. They're watching what's happening in the interest rate environment. For us, we can control what we can control, and that's shipping great products for customers. And if you look at the outputs, it was actually our best quarter ever in terms of revenue, over $ 1. 4 billion in our best quarter ever in terms of adjusted EBITDA, over $ 800 million. We're continuing to diversify. We just hit 14 businesses that hit $ 100 million of ARR. So if we focus on the customers and we keep shipping, good

11:37 things will happen. For what the shareholders want, we're going to keep balancing, making sure that we're growing and with expense discipline. But everything we're hearing from shareholders is keep shipping, keep focusing on growth and expense discipline, and the rest will take care of itself.

11:51 So something that's going to take care of itself kind of tomorrow is the midterm elections and the elections more broadly in terms of certainly governors and various states.

12:02 Having said that, the outlook.

12:05 We hear a lot of talk about gridlock if we do see a blue wave or at least Democrats taking over the House of Representatives. Having said that, what would it mean potentially for your industry?

12:18 Because.

12:19 things not getting done too can be problematic, whether it's prediction markets, whether it's crypto, whether it's a lot of things in kind of the changing financial landscape. So how are you thinking about the outcomes of midterms and how it might impact you?

12:33 Yeah, absolutely. What we prefer is actually just having the rules and the regulations so we know how to operate. We operate best in a regulated environment. We actually want things to get done. And so we're agnostic to which party is in charge and which administration is in charge. All we ask for is can we continue to innovate and can we continue to give us the rules to allow us to build? So, for example, we're continuing to work with the SEC on such things they mentioned as KPI products and how to make the IPO market big again.

13:01 We're working with different regulators across crypto and brokerage and our banking product. And so for us, the most important thing is that people are open-minded, they want to do things, and we want to work with both sides of the aisle and the administration. Gridlock's not great for anyone, but I think America's figured out that if you have great people in charge who are trying to do the right thing, in general, you will get to a good spot, but it will be interesting to see how it all shakes out after tomorrow.

13:27 Super appreciate it. Shiv, thanks so much. Take care. Shiv Verma, he is the Chief Financial Officer of Robinhood, joining us right now on this Monday afternoon.