Robinhood Outpaces Charles Schwab in Organic Growth, Analyst Says.

Robinhood outpaces Charles Schwab in organic growth, with Schwab's rate lagging behind Robinhood and other competitors. Robinhood's recent Q1 results showed a 50% YoY revenue increase, record net deposits of $18 billion, and nearly doubled gold subscribers to 3.2 million. Schwab's organic growth rate is below its target of 5-7%, leading to an "Underperform" rating.

Robinhood Markets (NASDAQ: HOOD) has been making waves in the financial sector, outpacing traditional brokerage Charles Schwab in organic growth. According to the latest quarterly results, Robinhood reported a 50% year-over-year (YoY) revenue increase, record net deposits of $18 billion, and nearly doubled its gold subscribers to 3.2 million [1]. In contrast, Schwab's organic growth rate is lagging behind its target of 5-7%, leading to an "Underperform" rating from analysts [2].

Rapid Expansion at Robinhood

Robinhood's expansion has been driven by several factors. The platform has seen a significant increase in its number of funded customers and assets under custody (AUC). From 2020 to 2024, Robinhood more than doubled its number of funded customers as its AUC more than tripled [1]. This growth trajectory was maintained even during a challenging 2022, when rising interest rates chilled the stock and crypto markets.

The company's revenue growth is particularly impressive, with a robust compound annual growth rate (CAGR) of 32.5% from 2020 to 2024 [1]. This growth was bolstered by a reduction in stock-based compensation expenses, higher-margin subscription revenues, and rising interest income from cash sweep and margin lending services.

Schwab's Lagging Performance

Charles Schwab, on the other hand, has been facing challenges in maintaining its growth momentum. The company's organic growth rate has fallen short of its target of 5-7%, leading to an "Underperform" rating from analysts [2]. Schwab's performance has been affected by various factors, including increasing competition from fintech platforms like Robinhood and the broader economic slowdown.

Regulatory and Market Factors

Robinhood's growth has also been buoyed by the dissipation of regulatory headwinds. The Securities and Exchange Commission (SEC) under Chairman Gary Gensler had scrutinized Robinhood's "payment for order flow" (PFOF) model, but the regulatory pressure has since eased under the new leadership of Paul Atkins [1]. This has provided a clearer path for Robinhood to expand its commission-free trading platform.

Moreover, the recent expansion of Robinhood's ecosystem, including the addition of more crypto trading, options trading, and card-based banking services, has further bolstered its growth prospects [1].

Conclusion

While both Robinhood and Schwab have their strengths and challenges, Robinhood's rapid organic growth and expanding ecosystem have positioned it as a strong contender in the fintech space. Schwab, while still a significant player, may need to adapt its strategies to keep pace with the evolving market landscape.

References:
[1] https://finance.yahoo.com/news/heres-why-robinhood-stock-buy-123000054.html
[2] https://ca.investing.com/news/insider-trading-news/robinhoods-tenev-sells-393-million-in-shares-93CH-4108959