Why are millions of people paying for Robinhood Gold?

By Gordon Gottsegen

Robinhood says that 1.7 million people are signed up for its paid subscription service, a 42% jump year over year

One of Robinhood's appeals to retail investors is its commission-free trading, but a recent jump in its paid subscription service raises the question: Are people willing to pay for "free" trades?

During its after-hours earnings call Wednesday, Robinhood (HOOD) revealed significant gains, including a 40% year-over-year increase in revenue, a 52% decrease in operating expenses and growth in number of funded accounts.

Robinhood shares jumped after the positive news gleaned from earnings, and were up over 7% in pre-market trading. However, shares reversed dramatically after market open, ending Thursday down 3%. This may be due to the continuing SEC investigation into Robinhood's crypto business and recent Wells notice. In the earnings call, Robinhood said transaction-based revenues from cryptocurrencies reached $126 million, up 232%. The SEC's scrutiny into Robinhood's crypto business may affect the reliability of this stream of revenue in the future.

See: Robinhood's SEC battle asks if crypto is a security. The answer could change how we trade.

But one of the stars of the earnings show was the growth in paid Robinhood Gold subscribers. The company said that 1.7 million people are now signed up for Robinhood Gold, representing a 42% jump year over year.

"Customers are finding our Gold offering compelling across high-yield cash, retirement, margin rates and now our Gold credit card. This led Gold subscribers to reach 1.7 million in Q1, higher than at any other point in our history," Vlad Tenev, CEO and co-founder of Robinhood, said during the earnings call.

He continued, "The 260,000 Gold subscribers we added in Q1 was the fastest in the past three years. It's also exciting to see that nearly 20% of new funded customers in Q1 subscribe to Gold, and that's more than double a year ago."

Robinhood Gold is the brokerage's $5-a-month premium subscription service. Like Tenev said, it comes with a handful of perks, including 5% interest on uninvested cash, increased instant deposit limits, access to margin trading at 8%, and additional research and market data.

However, Robinhood has recently announced several features exclusive to Gold subscribers that may be responsible for the new bump. This includes a 1% boost for incoming brokerage deposits and a 3% match for IRA transfers.

Essentially, this means that Robinhood is paying Gold subscribers to move money into their Robinhood accounts. The 1% boost has no cap, meaning investors can get $100 when they deposit $10,000, $1,000 for $100,000, and so on. The 3% offers even more when a subscriber makes an IRA contribution.

Of course, there are terms that apply, including that investors have to keep their Gold subscription active for a year to get the 3% IRA match, and the 1% boost gets paid out monthly over the course of two years. But if investors transfer enough into their accounts they can stand to profit from the $5-a-month subscription.

Robinhood announced the retirement match at the start of the year, and the unlimited 1% boost in March, which both line up with the gain in Gold subscribers Robinhood saw in the first quarter. Robinhood also revealed that it added an additional 140,000 Gold subscribers in April - more than half of the growth it saw in the first quarter.

In the call, Robinhood Chief Financial Officer Jason Warnick observed that Gold subscribers grew net deposits roughly twice as fast as the average Robinhood user, and had five times the retirement account adoption. This points to the fact that Gold subscribers were taking advantage of the deposit boost and retirement matching in the first quarter.

In addition to those two Gold perks, Robinhood pointed toward excitement surrounding its upcoming Gold Card.

In late March, Robinhood announced the Robinhood Gold Card, a credit card exclusive for Gold subscribers. The card comes with several perks, including 3% cash back across all categories.

In its earnings call, Robinhood said that over 1 million people are signed up for the Gold Card's wait list, and that it'll begin to slowly roll out the card to tens of thousands of subscribers. Considering that 1.7 million people are signed up for Robinhood Gold, most of these subscribers are also interested in the Gold credit card.

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

05-09-24 2257ET

Copyright (c) 2024 Dow Jones & Company, Inc.