Intro
On the 1st of July 2021, Robinhood finally announced its IPO, one day after FINRA levied a $70-million fine on the company. Robinhood's IPO is undoubtedly one of the most popular share issuances in 2021.
BrokerChooser’s analyst team is constantly on the lookout for emerging trends in the world of retail brokerages. We dug deep into our own database to see how Robinhood's business compares to other retail brokers. Read on to learn what we found.
Key statements:
- Robinhood's customer base is three times larger than that of the other brokers we surveyed. In addition, the growth of its customer base is more than 3 times higher compared to the average growth rate at other brokers.
- Robinhood customers have significantly lower account sizes, even 40-50 times smaller than other brokers’ customer accounts. In contrast, the growth of client asset value at Robinhood was the highest among brokers, more than three times higher.
- Robinhood's revenue grew at the fastest pace, more than 3 times faster compared to the average of other brokers. On the other hand, Robinhood monetizes the lowest amount vs brokers that focus on monetizing the highest possible amount on each customer
- Payment for order flow revenue is the most important revenue element for Robinhood as 75% of Robinhood's total revenue in 2020 was generated by PFOF, while PFOF made up less than 10% of revenues at most other brokers.
- Trading activity skyrocketed in Q1 2021. Our estimation for Robinhood's execution numbers shows that Robinhood executes a significant number of orders, more than 5-10 more orders than most non-US brokers.
Number of customers
Robinhood's customer base is three times larger than the average number of customers at brokers we analyzed. Also, the growth of customer base is more than 3 times larger than the average of other brokers.
Analysis of 2020 full-year
Robinhood ranks as the second-largest broker among all the brokers we analyzed in terms of number of customers. Only Charles Schwab (following its merger with TD Ameritrade) was able to compete with Robinhood with respect to customer numbers.
The growth rate of client acquisition at Robinhood was 143%, while other brokers averaged only 40%.
Analysis of Q1 2021
Q1 2021 was an outstanding period for brokerages and financial markets in general due to meme stocks and crypto volatility. Just like in 2020, Robinhood had the highest customer growth rate, even though it faced serious difficulties, such as the halt in trading fiasco and closer scrutiny by regulators.
Client assets
Robinhood customers have significantly lower account sizes, with typically 40-50 times smaller accounts. On the other hand, the growth of client asset value was the highest in comparison with other brokers, as value grew more than 3 times more than at other brokers.
Analysis of 2020 full-year
The total of Robinhood clients's asset value is one of the smallest in comparison with other brokers. The main reason is that Robinhood customers have the lowest account size. For example, Charles Schwab customers had more than 45x larger accounts.
In comparison, the client asset value at Robinhood grew at the fastest pace, mainly due to the significant increase in total customers.
Analysis of Q1 2021
Similarly to the end of 2020, Robinhood had the highest growth rate in client assets in Q1 2021 at 29%.
Revenue
Robinhood's revenue grew at the fastest pace, more than three times faster than the average at other brokers. On the other hand, Robinhood monetizes the lowest amount while brokers that focus on trading monetize the best.
Analysis of 2020 full-year
Robinhood's total revenue reached almost $1 billion in 2020 with the brokerage booking the biggest revenue growth among brokers. However, Robinhood had the lowest revenue per customer. Brokers with a trading focus (such as IG or Plus500 that are CFD brokers) monetize significantly more than other brokers.
In contrast, revenue at Charles Schwab / TD decreased in 2020 from 2019 due to the commission cut implemented at the end of 2019.
Analysis of Q1 2021 2021
Similarly to the annual revenue trend seen in 2020, Robinhood had the biggest revenue jump in Q1 2021 on an annual basis at a staggering 309%.
Payment for order flow
Payment for order flow revenue is the most important revenue source for Robinhood as 75% of the company's total revenue in 2020 was generated by PFOF. In contrast, PFOF made up less than 10% of total revenue at most other brokers.
Robinhood booked outstanding payment for order flow revenue, roughly 3 times more than Charles Schwab earned in the analyzed period (2020 Jan and 2021 Mar).
Robinhood's business model relies heavily on payment for order flow revenue, making up ~75% of its total revenue. This is significantly higher than competitors.
E*TRADE, data was collected for 2020 H1 as this was the last period they provided revenue data separately (prior to the completion of the E*RADE-Morgan Stanley merger)
Number of executed trades
Trading activity skyrocketed in Q1 2021. Our estimation for Robinhood's execution numbers show that Robinhood executed a significant number of orders, more than 5-10 more than most non-US brokers.
We estimated the trend of Robinhood's execution from their payment for order flow revenue (PFOF). PFOF and executed trades strongly correlate as the higher the trading activity, the more PFOF revenue the broker gets.
As illustrated below, the execution trend is similar to that of other brokers: there was a rapid increase in March and June of 2020, with trading activity growing even stronger in Jan and Feb of 2021.
June 2020 was the only month when Robinhood reported its execution number (DARTs numbers). That's why we compared PFOF and execution number statistics for that month below.
Robinhood's PFOF revenue accounts for a significantly higher part of its total revenue than at other brokers, but the PFOF / executed trades number is lower than TD's or E*TRADE's. The main reason for this could be that customer orders at Robinhood are usually smaller in size.
| PFOF in Jun 2020 (in USD millions) | Executed trades (in millions) | PFOF / executed trades (in USD) | |
|---|---|---|---|
| TD Ameritrade | $126.5 | 84.5 | $1.5 |
| Robinhood | $84.8 | 94.8 | $0.9 |
| E*TRADE | $39.7 | 24.5 | $1.6 |
| Charles Schwab | $24.6 | 36.8 | $0.7 |
| Interactive Brokers | $0.4 | 41.0 | $0.0 |
Charles Schwab and TD Ameritrade featured separately as the completion of their merger took place in Oct 2020
If we estimate that PFOF / executed trades number is $0.9 for the whole analyzed period, we can estimate the number of times Robinhood's customers executed orders for each month. This shows that Robinhood customers' total trading activity is somewhere between that of Charles Schwab & TD and Interactive Brokers, as indicated on the chart below.
If we compare these numbers with non-US players, we can see that the aggregate (total) execution number is significantly higher. One important factor here is that US brokers have a much bigger customer base.
For that reason we decided to check the average number of executed trades per account in a year. In the top three slots, there are traditionally trading-focused brokers (e.g. Plus500 and XTB provide mainly CFDs, a highly speculative product), while Hargreaves Lansdown and Swissquote are investor-focused brokers. Robinhood's estimated execution number is between these two spectrums.
Further insights
We identified other interesting areas in Robinhood S1 filing, e.g. the ratio of crypto trading among Robinhood customer or mobile trading activity among US customers.
Below, you can find further interesting insights from Robinhood's IPO prospectus:
1. More than 50% of Robinhood's customers are first-timers. This is in line with what we experience at BrokerChooser: 50% of our US retail customers say they're first-timers. On the other hand, this is around 40% among EU customers.
2. Crypto trading was a really important revenue factor in 2021 Q1, crypto trading made up 17% of total revenue. It's also a striking fact that 34% of this cryptocurrency revenue was relating to Dogecoin (vs 4% in 2020 Q4).
3. Crypto assets under management were worth $88 billion at the end of 2021 Q1. Based on crypto's total market capitalization at that time ($1.8 trillion), it was roughly 0.5% of the total market cap globally.
4. The total US total retail investment size is $50 trillion according to Schwab's analysis. Based on that, assets of Robinhood customers make up roughly 0.02% of total assets in the US.
5. 68% of US customers aged between 18 and 29 haven't participated in the stock market, according to Gallup's 2020 poll.
6. 206,000 customers left Robinhood around the GME frenzy in Jan 2021 and the trading restrictions imposed by Robinhood. It was more than 1% of total Robinhood customers. Total assets under management of these customers were worth $4.1 billion (5% of total assets under management).
7. There were many legal actions against Robinhood with regards to Robinhood's outages, order routing, trading restrictions, and cybersecurity issues. For example, Robinhood had to pay a $65 million fine in Dec 2020 due to inferior order execution quality compared with other brokers or Robinhood had lawsuits relating to unauthorized access to customer accounts.
8. According to FINRA surveys, 30% of retail trading happens on mobile and this ratio is 59% at retail customers aged between 18-34.
Sources and data
We collected the information and data from publicly available reports: annual and quarterly reports, SEC 606 reports, Robinhood's S1 filing.
The brokers we selected are publicly listed companies regularly analyzed in detail by BrokerChooser. We focused on the data of the following brokers:
- Robinhood - US stockbroker
- Charles Schwab & TD Ameritrade - US stockbroker; Charles Schwab and TD Ameritrade completed their merger in 2020
- E*TRADE - US stockbroker; E*TRADE's merged with Morgan Stanley was completed in 2020, after 2020 Q2 no public data was available
- Interactive Brokers - US-based stockbroker, but it accepts clients globally
- Hargreaves Lansdown - UK stockbroker
- AJ Bell Youinvest - UK stockbroker
- Interactive Investor - UK stockbroker
- flatex-DEGIRO - EU stockbroker; flatex and DEGIRO completed their merger in 2020
- Saxo Bank - EU-based stockbroker, but accepts clients globally
- Swissquote - Switzerland-based stockbroker, but accepts clients globally
- XTB - global CFD broker
- Plus500 - global CFD broker
- IG - global CFD broker
If you have any questions about the methodology or dataset, feel free to contact us at [email protected].
Thank you!
Everything you find on BrokerChooser is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology.
