Robinhood: Apparently the place to lose all your money
Coming back to you with a cross-post
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A few days before the Superbowl, Robinhood announced a partnership with Kalshi that allowed users to bet on the big game. Sports betting, or “prediction markets” as their lawyers would likely force me to say, were now accessible to users on Robinhood.
This came to a halt when the CFTC requested that Robinhood remove “sports events contracts” from the platform the very next day. So for the time being, users of Robinhood would have to lose money betting on the Chiefs somewhere else (go birds).
On one hand, getting into sports betting is a great move for Robinhood. A good portion of their users are just trying to trade highly volatile options that either lose 70% or gain 240% in a week (usually the former). Most people would consider these users “gamblers” and the exact type of person that is also using Draftkings bonus bets on a 9-team parlay. From that perspective, why not try to lean into sports gambling if you’re Robinhood? It fits exactly into this user's persona.
While it could be a good move in the short term (emphasis on the “could”), this would be harmful for the long term performance and reputation of the company. Over the next few years, Robinhood has the opportunity to transform into a serious financial institution through its current retirement strategies partnered with a wealth management arm (will expand upon later).
Look Under the Hood (yes, pun intended)
Right now, retirement is kind of killing it for Robinhood. Retirement assets under custody grew 9x in a year, accounts grew over 2x, and retirement users had 70% more assets on the platform than a typical user. Now, do these customers want their retirement brokerage also offering sports betting? I assumed not, but let’s check some twitter replies:
“I don’t want to see my nest egg next to the roulette table”
Two big takeaways:
It seems that replying to a tweet is an excuse to lose all spelling and grammar knowledge you may have.
People do not want to see sports betting and gambling in the same app.
The thing is Robinhood knows how to build. They currently have eight separate products doing over $100m in annual revenue and just reported $1b in revenue for the first time in last night's earnings (2/12).
When it comes to their future, they need to take the path that focuses them toward wealth management and retirement, not “prediction markets”. The CEO has mentioned multiple times on earnings calls the desire to get into wealth management, the roadmap points to this coming down the line, and customers are increasingly growing their assets and trust within the platform.
Here’s my opinion for the future of Robinhood’s strategy:
Retirement is a strong business arm, lean into and keep growing your share here.
Build or buy a Wealth Management arm. Users are beginning to trust you, and the market is ripe for disruption.
You can get into “prediction markets”, but do it differently. Build or buy here as well.
Read the rest here….