[News Inside] Despite Robinhood's Box Office Flop, "We Won't Be Obsessed with Immediate Profits"

Vlad Tenev Robinhood CEO

▲Vlad Tenev, CEO of Robinhood [Photo by Reuters]

[Asia Economy Reporter Kwon Jaehee] Robinhood, which attracted attention as a promising Nasdaq IPO candidate, recorded a disappointing performance on its first day of trading, falling by over 8%. However, Robinhood's CEO Vlad Tenev expressed confidence, stating, "We will not be obsessed with immediate profits."

Launched in 2014, Robinhood is an online stock trading platform that led the "Seohak Ant" movement (Korean individual investors investing in U.S. stocks). True to Robinhood's mission of "democratic finance for all," it quickly established itself among U.S. retail investors by enabling fast and convenient commission-free stock trading via mobile devices. Especially during last year's COVID-19 pandemic, as individual investors flocked to the stock market, Robinhood experienced rapid growth. The surge in value of Robinhood, driven by thematic investments in so-called "meme stocks" like GameStop and AMC Entertainment and short-selling controversies, quickly resolved the previously cited obstacle of its deficit problem.

According to the filing Robinhood submitted to the U.S. Securities and Exchange Commission (SEC), Robinhood posted revenue of $958.83 million (approximately 1.094 trillion KRW) last year, a 3.4-fold increase from $278 million the previous year. It recorded a net profit of $7.45 million. Particularly, in the first quarter of this year alone, revenue reached $522 million, more than quadrupling compared to the same period last year, continuing its strong performance. The number of users also increased. The number of active Robinhood users in the first quarter of this year was 17.7 million, about twice the 8.6 million from a year earlier.

[Image source=Reuters Yonhap News]

Robinhood was founded in Menlo Park, California, by CEO Vlad Tenev and Baiju Bhatt. Tenev was born in Bulgaria in 1986 and immigrated to the United States with his parents when he was five years old. His parents, former economics professors, worked at the World Bank for over 25 years. Influenced by his parents, Tenev grew up in an environment familiar with finance from an early age. He later enrolled in Stanford University’s mathematics department, where he met Baiju Bhatt, an Indian-American and Robinhood’s co-founder. They completed their master's degrees in mathematics at the University of California and, while pursuing doctoral studies, founded a software company for banks and hedge funds. This was their first startup and laid the foundation for Robinhood.

Subsequently, Tenev and Bhatt decided to create a consumer platform rather than one for enterprises and began developing Robinhood, an online platform that allows individual investors to trade stocks commission-free. Starting as a stock trading platform, Robinhood evolved into a comprehensive financial trading platform by sequentially introducing ETFs, cryptocurrencies, and more.

Unlike most financial trading platforms that generate revenue through transaction fees, Robinhood charges no fees from users. Instead, it earns revenue by providing customers' trading data to major Wall Street financial firms. However, last year's net profit of $7.45 million was negligible compared to the revenue of $958.83 million during the same period. Additionally, Robinhood's Nasdaq IPO failed to impress, starting trading at the offering price of $38 but closing down 8.4% at $34.82. Considering that $38 was the lowest end of the hoped-for price range, the result was disappointing.

[Image source=Reuters Yonhap News]

However, Tenev expressed confidence, saying he is not concerned with immediate profits. In an interview with Fortune, Tenev stated, "We do not plan to make money in the near future," adding, "Instead of short-term gains through fees, we will focus on expanding the market as a comprehensive financial trading platform." He believes that securing many users and establishing a platform business will naturally lead to profits.

Despite Tenev's optimistic claims, the future is not without challenges. A major concern is regulatory risk. The SEC has announced investigations related to Robinhood's involvement in incidents surrounding various meme stocks such as GameStop and AMC Entertainment. During the GameStop incident, Robinhood was accused of restricting purchases by individual investors, effectively aiding hedge funds. As a result, the San Francisco U.S. Attorney's Office and the SEC have requested documents from Robinhood.

Another risk factor is the massive fines imposed by the Financial Industry Regulatory Authority (FINRA). FINRA fined Robinhood $57 million and ordered $12.6 million in customer restitution, citing that Robinhood's core business model of selling customers' trading information to major Wall Street banks caused customers to trade at worse prices than they would have through other brokers.