Deeply funded fintech company Robinhood has been the world’s most discussed startup over the last week. After the discount trading pioneer found itself in the midst of a battle between hedge funds on one side and a slurry of retail and institutional capital on the other, Robinhood’s trading volume spiked last week.
But after the National Securities Clearing Corporation (NSCC) raised its deposit requirements before the market open on Friday, Robinhood was forced to restrict trading in a number of popular stocks. The company also drew down its credit lines and raised new capital from prior investors to stay open during a trading avalanche.
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According to a Clubhouse chat between Robinhood CEO Vlad Tenev and Elon Musk last night, the NSCC initially asked Robinhood to post $3 billion in reserve capital. That figure was reduced to $1.4 billion and later to $700 million after Robinhood agreed to limit certain trades. Robinhood transmitted the funds and opened Friday.
But that’s all recent news. Let’s look back further.
TechCrunch has tracked Robinhood’s payment for order flow (PFOF) revenues for a several quarters now. The key revenue source for Robinhood is trackable, as the company has to file its incomes from it. This provides a good view into the company’s growth.
Today we’re parsing its Q4 2020 data, which shows a return to sequential-quarterly growth at the trading upstart.
Of course, we won’t have Q1 2021 data for another three months, but we do have — at last — a good look at how Robinhood wrapped 2020 and some insight into why its investors were willing to put in another $1 billion just last week.
Robinhood’s Q4 2020
Regular readers of The Exchange will recall that after a stonking Q2 2020, Robinhood’s Q3 2020 PFOF incomes were large, but not sequentially impressive; while Robinhood likely saw sharp revenue gains from Q3 2019 to Q3 2020, when we stacked last year’s third-quarter against its second, the company’s growth had slowed enough that we were curious what would happen in Q4.
Robinhood got back on form, essentially.
According to an early TechCrunch analysis of Robinhood’s filings, here’s the data from the preceding few quarters, inclusive of its latest results:
- Q1 2020 Robinhood PFOF total: $90.9 million.
- Q2 2020 Robinhood PFOF total: $177.9 million.
- Q3 2020 Robinhood PFOF total: $182.8 million.
- Q4 2020 Robinhood PFOF total: $221.4 million.
Or a total of around $673 million for the year, with the final Q4 2020 tally putting the company on a PFOF annualized run rate of around $885.6 million.
That is why Robinhood investors did not back away from the company during its period of woe; that’s why there was so much capital available for the trading service on a moment’s notice. It has shown staggering growth and capped last year on a high note.
Notably, of the $221.4 million that Robinhood earned from PFOF in Q4 2020, $142.3 million came from options trading. PFOF from stocks in the S&P 500 came to $6.1 million, while non-S&P 500 stocks were worth $72.9 million in PFOF incomes during the period.
Options trading therefore remains the majority income source for Robinhood in this category and, I would add, likely its single largest revenue stream, period.
Pure brilliance from Robinhood to offer regular consumers trading steroids? From a business perspective, yep. But PFOF is under fire lately, and not just from wonky dorks like myself who fret about consumer front-running. Bill Gurley, the American venture capital hall monitor is making noise about it, and Public, a Robinhood rival, decided to drop PFOF today.
I am blogging that soon, but, as a preview, as Public already made essentially nil from PFOF incomes, the move to drop them feels far more PR-driven than anything else.
Anyhoo, Robinhood wrapped 2020 in a strong place from a growth perspective and is probably enjoying its best quarter to date in revenue terms in Q1 2021, if what we understand about current retail demand for stocks is correct.
So much for a blowback!