To go forward, Robinhood Markets says it must go backward.
In its early days, a decade ago at this point, the online brokerage began making headway into the crowded business of stock and options trading partly by making it easy to do so via mobile devices. That helped it become a pathway into investing for many younger people, though it also drove some of the criticism of its service as a “gamification” of the industry.
But at Robinhood’s first-ever investor day on Wednesday, speaking now as a $35 billion market cap company, the onetime upstart said it believes it must go back to what might seem like an older technology—the computer desktop—as a pillar of its growth over the next few years. That is because the company is aiming to become the No. 1 platform for serious retail traders, or what it terms active traders.
About 50% of overall retail trading takes place away from mobile devices, the company said in its materials. Picture someone sitting in front of big screens, clicking and rapid-fire trading. But what is termed “web” trading has been less than 10% of Robinhood’s volumes historically, the company said. Robinhood’s recently launched Legend is “what we believe to be the most state-of-the-art desktop platform for trading,” Chief Executive Vlad Tenev told investors Wednesday.
It might be surprising to some that Robinhood is moving in this direction. After all, part of the allure of being a trading platform drawing many newbies is that you can evolve with those customers, as they move into needing retirement and other financial services. That is the model of many of the biggest banks, which might offer some self-directed trading tools that ultimately funnel into banking and advisory. And Robinhood is certainly doing a lot of that wallet-share broadening, such as launching into individual retirement accounts and credit cards.
But consider some of the larger tectonic shifts in the brokerage and wealth business. Major revenue sources are under big pressure. Higher interest rates are squeezing income from “sweeping” cash into low-cost deposit accounts, and there is also investor and regulatory scrutiny of this practice. Thanks largely to Robinhood, commissions on trading stocks are now typically zero. And getting big into consumer lending requires capital, taking on credit and interest-rate risk and competing with banks whose funding costs are superlow.
So with all of that as the backdrop, going deeper with serious traders makes sense. They are likely to pay to subscribe to Robinhood’s Gold service, which offers many of its best products or features. They might borrow money to trade on margin. They can also trade at a frequency that still generates substantial revenue from payment for order flow. All of that could prove to be a more surefire path to revenue growth.
Robinhood says success with active traders can help fund and develop products that can later be introduced to a mass audience. It recently agreed to acquire TradePMR, a platform for advisers that can help it connect customers to a human. But Robinhood also believes many future investors might behave more like do-it-yourself day traders.
“Institutional distrust is at an all-time high,” Tenev told investors. He argued that wealth is transferring “from people who grew up needing stockbrokers and visits to bank branches to the type of people…who are growing up with the tools to independently manage their finances from home.”
Already, Robinhood has significant inroads with people who have more-sophisticated financial needs. According to investor day figures, 45% of recent users earn six figures or more. Gen Xers or older generations—people who are at least 44 years old—made up a quarter of recent users. And about 60% of the recent users were married or living with a partner. In addition to its Legend platform, Robinhood recently added futures trading and index options trading, as well as event contracts, on top of its prior move into 24-hour trading, all of which should appeal to the active-trader segment.
Whether they are making moves on desktop or mobile, Robinhood is still betting that highly active traders are a core part of its business.
Write to Telis Demos at Telis.Demos@wsj.com