Robinhood(HOOD) - 2024 Q4 - Annual Report

Part I Business Overview Robinhood democratizes finance through a mobile-first platform offering diverse financial services, expanding globally while focusing on active traders and next-gen wallet share Company Overview Robinhood's core mission is to democratize finance for all, guided by values emphasizing safety, customer focus, and high performance - Robinhood's mission is to democratize finance for all, creating a modern financial services platform for everyone, regardless of wealth, income, or background[21][22] - The company's core values include Safety First, Radical Customer Focus, Participation Is Power, One Robinhood, High Performance, First-Principles Thinking, and being Lean and Disciplined[23][29] Products and Features Robinhood continuously expands its product offerings, including a new desktop platform, international brokerage services, futures trading, and premium Gold subscription features - Introduced Robinhood Legend, a customizable browser-based desktop trading platform, in Q4 2024, aiming to make it the most state-of-the-art desktop platform for trading[26] - Expanded brokerage services to the U.K. in 2024, offering commission-free trading of U.S. stocks, options, fractional shares, and more, with plans to expand the offering in 2025[34] - Launched futures trading in January 2025, offering access to stock indexes, energy, currency, metals, and crypto futures with low commission rates[35] - Offers cryptocurrency trading in all U.S. states and largest territories, and in select EU jurisdictions, supporting 22 cryptocurrencies in the U.S. and offering staking exclusively for EU customers[36][37][40] - The Robinhood Gold subscription offers premium features including a higher interest rate on cash sweep, a 3% match on IRA contributions, bigger instant deposits, and access to the Robinhood Gold Card[47][49] Technology and Innovation Robinhood leverages a self-clearing system and focuses on AI and blockchain technology to transform financial infrastructure and reduce operational costs - The company operates a self-clearing system for stocks, ETFs, and options, providing greater control and oversight over clearing and settlement functions[52] - Robinhood is strategically focused on two major platform shifts: Artificial Intelligence (AI) and cryptocurrency/blockchain technology, expecting to introduce its first AI-native advisory products in the coming year[53][56] - The company believes cryptocurrency and blockchain will fundamentally transform financial infrastructure through tokenization, reducing the need for traditional intermediaries and lowering operational costs[56] Growth Strategies Robinhood's growth strategies target becoming the leading platform for active traders, increasing wallet share among the next generation, and building a global financial ecosystem - The company's growth is centered on three key strategies: becoming the 1 platform for active traders, achieving 1 in wallet share for the next generation, and building the 1 global financial ecosystem[57][58][59] - To attract active traders, Robinhood is focusing on new product innovations (e.g., 24 Hour Market), expanding asset classes (index options, futures), and improving trading tools, particularly on the Robinhood Legend platform[58][60] - International expansion is a key priority, with plans to extend products like options trading to the U.K. in 2025 and opening an office in Singapore as its APAC headquarters[62] Human Capital Robinhood employs approximately 2,300 full-time staff, fostering a high-performance culture with variable incentive pay and strong employee resource group engagement - As of December 31, 2024, Robinhood had approximately 2,300 full-time employees[76] - The company fosters a high-performance culture with all employees eligible for variable incentive pay (bonus and/or equity) linked to individual and company performance[74][79] - Robinhood supports ten Employee Resource Groups (ERGs) which engage about 60% of its employees as of year-end 2024[78] Regulation Robinhood operates under extensive regulation by the SEC, FINRA, and state authorities, with evolving oversight for cryptocurrency and emerging AI technologies - The company's broker-dealer subsidiaries (RHS and RHF) are subject to extensive regulation by the SEC and FINRA, including strict net capital requirements under Rule 15c3-1[87][88] - Cryptocurrency operations are primarily regulated at the state level in the U.S. (RHC as a money transmitter) and by various authorities in the EU (RHEU), with the landscape rapidly evolving, including the implementation of the Markets in Crypto-Assets Regulation (MiCA) in the EU[93][101][102] - The company is subject to emerging regulations around Artificial Intelligence, such as the EU's AI Act and various state-level laws in California, which govern the use, transparency, and privacy of AI technologies[108] Risk Factors Robinhood faces significant risks from transaction-based revenue scrutiny, interest rate volatility, intense competition, rapid expansion, and complex regulatory and legal challenges, compounded by cryptocurrency market uncertainties and concentrated founder voting power - A large portion of revenue is transaction-based (PFOF and crypto rebates), which is sensitive to trading volumes, market maker relationships, and heightened regulatory scrutiny, including potential new rules or bans on PFOF[113][128][133] - The business is subject to extensive and changing laws and regulations, and the company is frequently involved in regulatory investigations and litigation, which could result in substantial costs and changes to business practices[115][179][185] - Cryptocurrency operations face extreme price volatility, a high degree of uncertainty regarding their legal status as securities in the U.S., and significant custody risks related to safeguarding private keys[115][255][259] - The multi-class stock structure concentrates over 50% of the voting power with the company's founders, limiting the influence of Class A common stockholders on corporate matters[116][349] Cybersecurity Robinhood maintains a comprehensive cybersecurity program aligned with NIST CSF, overseen by the CSO and Board, with formal processes for risk management and incident disclosure - The cybersecurity program is managed by the Chief Security Officer (CSO) and is aligned with the NIST Cybersecurity Framework (NIST CSF), with annual maturity assessments conducted by third-party consultants[362] - Board-level oversight is provided by the Safety Committee, which is composed of independent directors and receives quarterly updates on cybersecurity risks and threats[366][369] - A Materiality Assessment Committee (MAC), consisting of the CFO, CLO, and CBO, is responsible for determining if a cybersecurity incident is material and requires public disclosure[368] Part II Market for Common Equity and Shareholder Matters Robinhood's Class A common stock trades on Nasdaq, with no cash dividends paid, and the company initiated a $1 billion share repurchase program in May 2024 - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future, intending to retain earnings for business growth[379] Share Repurchases in Q4 2024 | Period | Total Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares Remaining for Purchase (in millions) | | :--- | :--- | :--- | :--- | | Oct 2024 | 797,990 | $25.23 | $882 | | Nov 2024 | 2,787,976 | $25.35 | $812 | | Dec 2024 | 1,757,949 | $38.90 | $743 | | Total Q4 | 5,343,915 | $29.79 | $743 | - On May 28, 2024, the Board of Directors approved a share repurchase program authorizing the company to repurchase up to $1 billion of its Class A common stock[382] Management's Discussion and Analysis (MD&A) Robinhood achieved a significant turnaround in FY2024 with $1.41 billion net income and 58% revenue growth, driven by transaction and interest revenues, alongside strong growth in key customer and asset metrics Overview and Key Performance Metrics Robinhood's FY2024 financial performance shows significant revenue and net income growth, alongside strong increases in funded customers, assets under custody, and net deposits FY 2024 Financial Highlights vs. FY 2023 | Metric | FY 2024 | FY 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Net Revenues | $2.95 billion | $1.87 billion | 58% | | Net Income (Loss) | $1.41 billion | ($0.54 billion) | NM | | Diluted EPS | $1.56 | ($0.61) | NM | | Adjusted EBITDA (Non-GAAP) | $1.43 billion | $0.54 billion | 167% | Key Performance Metrics (as of Dec 31) | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Funded Customers | 25.2 million | 23.4 million | 8% | | Assets Under Custody (AUC) | $192.9 billion | $102.6 billion | 88% | | Net Deposits (Annual) | $50.5 billion | $17.1 billion | 195% | | Average Revenue Per User (ARPU) | $122 | $80 | 53% | | Gold Subscribers | 2.64 million | 1.42 million | 86% | - Net income for 2024 included a $369 million deferred tax benefit from the release of the company's valuation allowance and a $55 million benefit from a regulatory settlement accrual reversal[395] Results of Operations Robinhood's 2024 operations saw substantial growth in transaction-based revenues, particularly cryptocurrencies, and net interest revenues, while operating expenses decreased significantly Transaction-Based Revenues (in millions) | Category | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Options | $760 | $505 | 50% | | Cryptocurrencies | $626 | $135 | 364% | | Equities | $177 | $104 | 70% | | Other | $84 | $41 | 105% | | Total | $1,647 | $785 | 110% | Net Interest Revenues (in millions) | Category | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Margin interest | $319 | $243 | 31% | | Interest on segregated cash & deposits | $261 | $210 | 24% | | Cash Sweep | $179 | $123 | 46% | | Securities lending, net | $94 | $79 | 19% | | Total Net Interest Revenues | $1,109 | $929 | 19% | Operating Expenses (in millions) | Category | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Brokerage and transaction | $164 | $146 | 12% | | Technology and development | $818 | $805 | 2% | | Operations | $112 | $116 | (3)% | | Provision for credit losses | $76 | $43 | 77% | | Marketing | $272 | $122 | 123% | | General and administrative | $455 | $1,169 | (61)% | | Total Operating Expenses | $1,897 | $2,401 | (21)% | - The 61% decrease in General and Administrative expenses was primarily due to a $485 million SBC charge in 2023 for the 2021 Founders Award Cancellation that did not recur in 2024, and a $155 million decrease in settlements and penalties[439] Liquidity and Capital Resources Robinhood maintains strong liquidity with substantial cash and credit facilities, and its subsidiaries exceed regulatory net capital requirements - As of December 31, 2024, the company had $4.33 billion in cash and cash equivalents, $398 million in held-to-maturity investments, and $361 million in stablecoin[443] - The company has access to $3.00 billion in committed revolving credit facilities and up to $300 million in borrowing for its Credit Card Funding Trust as of year-end 2024[444] Regulatory Net Capital (as of Dec 31, 2024) | Subsidiary | Net Capital (in millions) | Required Net Capital (in millions) | Excess Net Capital (in millions) | | :--- | :--- | :--- | :--- | | RHS | $2,540 | $178 | $2,362 | | RHF | $248 | $0.25 | $247.75 | | RHD | $40 | $1 | $39 | Critical Accounting Estimates Key accounting estimates involve credit loss allowances, valuation of business combination assets, income tax valuation allowances, and fair value of share-based compensation - Key estimates include the allowance for credit losses, valuation of assets in business combinations (goodwill and intangibles), income tax valuation allowances, and the fair value of share-based compensation, particularly for market-based awards[453][454][456] - The company tests goodwill for impairment annually or when triggering events occur, using a qualitative assessment followed by a quantitative test if necessary[457] - Significant judgment is required to determine the valuation allowance against deferred tax assets, considering historical loss experience and expectations of future earnings[460] Quantitative and Qualitative Disclosures About Market Risk Robinhood's primary market risk is interest rate fluctuations, with a 100 basis point increase potentially boosting annual net revenues by $188 million, alongside managed market-related credit risk Annualized Impact of Interest Rate Changes on Net Revenues (in millions) | Basis Point Change | Estimated Impact as of Dec 31, 2024 | | :--- | :--- | | +150 bps | $282 | | +100 bps | $188 | | +50 bps | $94 | - The company is exposed to market-related credit risk from securities collateralizing margin receivables and securities lending activities. This risk is managed by requiring customers to maintain collateral, daily monitoring of margin levels, and credit approvals for counterparties[476] Financial Statements and Supplementary Data This section presents Robinhood's audited consolidated financial statements for FY2024, with an unqualified auditor opinion, detailing key notes on business combinations, tax allowances, share repurchases, and legal contingencies Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on Robinhood's FY2024 financial statements and internal control over financial reporting - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and on the company's internal control over financial reporting as of December 31, 2024[481][492] - The critical audit matter identified was "Transaction-based revenues" due to the complexity and significant volume of transactions processed by the company's IT systems[488] Consolidated Financial Statements This section provides Robinhood's consolidated balance sheet and statement of operations data for the fiscal years presented Consolidated Balance Sheet Data (in millions) | | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $26,187 | $17,624 | | Cash and cash equivalents | $4,332 | $4,835 | | Receivables from users, net | $8,239 | $3,495 | | Total Liabilities | $18,215 | $10,928 | | Payables to users | $7,448 | $5,097 | | Securities loaned | $7,463 | $3,547 | | Total Stockholders' Equity | $7,972 | $6,696 | Consolidated Statement of Operations Data (in millions) | | FY 2024 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | | Total net revenues | $2,951 | $1,865 | $1,358 | | Total operating expenses | $1,897 | $2,401 | $2,369 | | Net income (loss) | $1,411 | ($541) | ($1,028) | | Diluted EPS | $1.56 | ($0.61) | ($1.17) | Notes to the Consolidated Financial Statements Key notes detail business combinations, income tax valuation allowance release, share repurchase programs, and significant legal and regulatory contingencies - Business Combinations (Note 3): Acquired X1 Inc. (now Robinhood Credit) on July 3, 2023, for $104 million. Announced pending acquisitions of Bitstamp (approx. $200M) and TradePMR (approx. $300M), expected to close in H1 2025[616][617][621] - Income Taxes (Note 9): Released the valuation allowance on most U.S. deferred tax assets in 2024, resulting in a net deferred tax benefit of $369 million[656] - Stockholders' Equity (Note 13): Repurchased and retired $608 million of stock from the USMS in August 2023. Initiated a new $1 billion share repurchase program in May 2024, with $257 million repurchased by year-end[694][696] - Commitments & Contingencies (Note 16): The company is involved in numerous legal and regulatory matters, including a Wells Notice from the SEC regarding its crypto business, ongoing litigation related to the Early 2021 Trading Restrictions, and a $45 million settlement with the SEC in January 2025 covering various operational and compliance issues[727][731][733] Controls and Procedures Management and Ernst & Young LLP concluded that Robinhood's disclosure controls and internal control over financial reporting were effective as of December 31, 2024 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2024[746] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2024, a conclusion supported by an unqualified audit report from Ernst & Young LLP[748][749]