Robinhood Markets, Inc. (HOOD 11.70%)
Q2 2022 Earnings Call
Aug 03, 2022, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and thank you for standing by. Welcome to the Robinhood’s second quarter 2022 earnings conference call. [Operator instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Koegel, head of investor relations.
Please go ahead.
Chris Koegel — Head of Investor Relations
Thank you, Victor. Welcome, everyone, and thank you for joining us for Robinhood’s second quarter 2022 earnings call. With us today are CEO and Co-Founder Vlad Tenev; and CFO Jason Warnick. Before getting started, I want to remind you that today’s presentation will contain forward-looking statements about our financial outlook and our strategic and operational plans.
Actual results could differ materially from our expectations, and we have no duty to provide updates unless legally required. Potential risk factors that could cause differences, including regulatory developments that we continue to monitor are described in our press release issued yesterday, the related slide presentation on our Investor Relations website, our Form 10-Q filed this afternoon and in our other SEC filings. Today’s discussion will also include non-GAAP financial measures. Reconciliations to the GAAP results we consider most comparable can be found in the earnings presentation on our Investor Relations website at investors.robinhood.com.
With that, let me turn it over to Vlad.
Vlad Tenev — Chief Executive Officer and Co-Founder
Thank you, Chris, for that great introduction, and thanks to everyone for joining. Last week was the one-year anniversary of our IPO. And in the 12 months since we’ve had to navigate two challenges, one of adapting to the public markets, and two of also dealing with an abrupt reversal of the macro environment. For our customers, many of whom are younger, it looks like they may be facing a recession for the first time in their adult lives of the last two quarters of negative GDP growth or any indication.
Customers are seeing this high inflation along with high interest rates, bear markets and stocks and a crypto winter. And this all adds up to less money to spend and therefore, less to save and invest. You can also see this reflected in the drop in assets under custody that we reported. Despite strong net deposits of over $5 billion in Q2, you can see that our assets under custody dropped.
And this shows that customers have been hurt by devaluation across cryptocurrencies and growth stocks in particular. And while we can’t control the macro environment, we’ve been hard at work building products to help our customers navigate it. Products like the Cash Card, stock lending and high yield on their uninvested cash. I’d have to say 2022 is by far our most prolific year yet of delivering products to customers, and we’ve got much more in the works.
For Robinhood in the seven-or-so years since we first launched in the U.S., we’ve consistently adapted to changes improved and become more robust and resilient as a company. If we’re headed into our first recession in the company’s history, we recognize it would be a challenging time, but strong companies use these times as opportunities, and we look forward to navigating through this environment and coming out even stronger. To that end, we made a tough call to further reduce our staff, which we announced the details of yesterday. These are hard decisions, but we believe they better position our business for the long term.
So alongside the reduction in force, we organized the company into a general manager structure for each of our core business units. We’ve been thinking about this change for some time, and I’m confident that it will speed up decision-making, increase accountability. And ultimately, it will help us deliver even faster for our customers. This is just one part of our leaner operating model, and Jason will share more color on this in his remarks.
Now onto the quarter. Despite the environment weakening, we were able to both increase our revenues and lower our expenses in Q2 compared to Q1. Now this was a companywide effort, and I am proud of the team for the hard work and dedication it took to get here. It certainly wasn’t easy.
We believe we’re making swift progress toward our goal of being adjusted EBITDA positive by the end of the year. So let’s move on and talk a little bit about our product road map. Remember, our goal is to deliver low-cost, simple products and a safe customer experience that give everyday people control over their finances and access to the same tools that wealthy people have enjoyed for generations. We’ve organized our efforts into three product areas: brokerage, crypto and money.
So I’d like to review each of those with you. Let’s start with brokerage. To put things in perspective, Robinhood is the most downloaded brokerage app in the U.S. We achieved this leadership position by aggressively innovating, which in turn fueled our account and asset growth.
To continue driving growth, we have focused our brokerage product development this year on two key areas: one, introducing retirement accounts; and the second, improving our customer experience, particularly for advanced customers. So starting with retirement accounts, I can’t tell you how excited we are about this product. We feel like we’ve come up with a way to offer retirement that is uniquely Robinhood, and we know our customers will love it as much as we do. We’re piloting them now with plans to launch later this year.
Additionally, retirement accounts will be the first time our customers will be able to have multiple brokerage accounts with us. We think this creates a big opportunity for us to broaden our support for and deepen our relationships with our customers over time. It’s also a new avenue for us to drive account and asset growth and increase our total share of wallet. Next, let’s turn to our advanced customers.
In Q1, we extended market hours. So customers now have more flexibility to trade when they want and customers have now traded over $9 billion in volume during these additional hours. Extending trading hours we view as the first step toward 24/7 stock trading, and we are making progress toward making this a reality. In Q2, we also rolled out fully paid securities lending to give customers another source of passive income on their stocks, which is especially important in the current environment.
We’re encouraged to see the early progress with over $3 billion of equity value already enrolled and available to lend. We’ve also been making a ton of improvements to our options product. We believe our options offering is the lowest cost and best user experience offering out there. Most of our competitors say they’re zero commissions, but they, in fact, charge a $0.65 commission for every contract treated, which is $65 for a $100 contract trade, which are $0 per contract.
Recently, we’ve added options in cash accounts, which has been a top requested feature by our options customers. We’ve also been doing a ton of in-person research with this group, and we recognize they care a lot about advanced charting on the platform. So we’re making our charting and technical indicators much better, and there is plenty more to come. Keep the feedback coming.
Our team has been working tirelessly to make Robinhood by far, the best place to trade. Now let’s turn to our crypto efforts. Our vision with crypto is to be the most trusted platform for customers to invest in crypto, as well as the most trusted on-ramp to the decentralized web. That is why after first introducing crypto investing in 2018, we’ve been relentlessly focused on three things: providing the best value, the best user experience and being the safest.
So let me tell you what we are delivering for customers in crypto by highlighting two areas that we’ve been working on this year, adding more coins and giving customers more control over their crypto. Starting with coins. Customers tell us that they want us to introduce more coins onto the platform. Some other crypto providers have come under scrutiny for listing unregistered securities on their platforms.
This can be dangerous and misleading for customers because they may expect these cryptos to be more decentralized than they really are. We employ a rigorous listing framework, which in the short term may feel like we aren’t moving fast enough. But we think this approach will pay off in the long term. Frankly, one of the benefits of being heavily regulated in a U.S.-based company is that it has helped us learn how to build with customer safety in mind.
So far in a deliberate and considered manner, we have introduced a number of new coins this year, and customers have been pleased with the offerings to date. Turning to our efforts to give customers more control over their crypto. In April, we launched our crypto wallet. So customers can move their crypto in and out of Robinhood in a simple, safe and seamless way.
We’ve heard feedback that customers want faster withdrawals and larger daily limits. So we raised our withdrawal limits from $3,000 to $5,000 per day and are working on improving this even more. Later this year, we will be rolling out our noncustodial wallets. This will be a separate stand-alone app, where customers can trade and swap crypto with no network fees and maintain full custody of their crypto throughout, all with the simplicity and great user experience they have come to expect from Robinhood.
We’re seeing good interest as our noncustodial wait list continues to grow, and our early internal version of the product looks awesome. We think customers are going to love it. OK. Let’s now move to our product development efforts related to Robinhood Money, which includes…
Read More: Robinhood Markets, Inc. (HOOD) Q2 2022 Earnings Call Transcript | The Motley Fool