SWOT Analysis of Robinhood | Robinhood Strengths &Weakness, Opportunities and Threats
1. What is Robinhood?
Robinhood is a popular stock trading app for mobile devices, which launched in December of 2013 by Vladimir Tenev and Baiju Bhatt.
The app aims to make it easier for college students to invest in the stock market.
As of January 2017, Robinhood offers commission-free trading on a variety of stocks and Exchange Trade Funds to major US companies. In the future, they plan to cover more national exchanges.
The majority of the company’s revenue comes from payments for order flow.
2. How is the Business Model of Robinhood?
Robinhood’s business model is very simple. Robinhood offers a mobile app that allows customers to invest in the stocks and ETFs listed on US exchanges.
To buy stocks, users link their bank account or credit card to a Robinhood account. If a user buys a stock or ETF for say $100, Robinhood will charge them a fee of $5-$10 depending on what method they use to purchase it.
When a user sells a stock or ETF, Robinhood will charge them a fee between $0-$2. If a user sells a stock or ETF for say $100, Robinhood will charge them a fee of $2 to take out the money.
3. How does Robinhood make money?
Robinhood makes money by charging buyers and sellers a fee for completing transactions.
Buyers pay $5-$10 depending on the method of payment.
They generate the majority of other revenue through:
a) Rebates from market makers and trading venues: When a market maker or trading venue pays Robinhood for order flow, they pay a rebate to Robinhood. Robinhood then pays this money to customers in the form of a $5-10 fee.
b) Robinhood Gold: Robinhood Gold is a fee product that offers additional benefits to customers. Robinhood has been offering these benefits since 2017.
c) Robinhood Interest: If a customer puts money into a Robinhood account, they earn a return on their investment. This is called interest for short and is not a fee. They have been offering this to customers since 2016
d) Stock loan: Robinhood offers loan companies the opportunity to borrow shares from Robinhood’s customers and pay them a fee.
e) Income generated from cash: Robinhood generates income for cash that has been deposited into their account.
f) Cash Management: Robinhood offers a feature that allows a user to hold cash in the Robinhood account.
4. Robinhood Competitors
Robinhood has many competitions in their industry. The main competitors are:
a) E-Trade: E-Trade is an online discount brokerage firm that provides stock trading services with online account management, investment research, and financial planning tools.
b) eToro: eToro is an online trading platform that allows users to invest exchange or sell financial instruments with maximum transparency of transactions.
c) River Financial: River Financial offers many stock and Exchange Trade Funds trading services.
d) Charles Schwab: Charles Schwab is a brokerage firm that has been in existence for decades and is specialized in helping companies with employee stock programs.
e) Coinbase: Coinbase is an online wallet, broker, and exchange that allows users to buy bit coin; sell; purchase bit coin with Visa, MasterCard via ACH bank transfer and more.
5. SWOT Analysis of Robinhood
Strengths of Robinhood
a) Great User Experience: Robinhood offers a very simple and straight to the point interface, which is easy to navigate while also making it look professional. It allows customers to easily look at their account balance, transaction history, and the stocks they are tracking as well as receive real time updates on their trades.
b) Solid Marketing Lead Generation: Robinhood’s marketing team is very strong. They have established Robinhood as a leader in the stock trading industry by being bold with their marketing strategy.
c) Strong Financials: Robinhood has proven that they are able to generate strong financials, while also maintaining positive cash flow due to their effective cost cutting measures.
d) Product Differentiation from Competitors: Robinhood provides an effective solution for stock traders looking to buy and sell stocks outside of the US stock market. Robinhood has differentiated themselves from their competitors by limiting commission fees, instead of introducing artificial delays or increasing trade minimums.
e) Strong Brand Awareness: IN order to build a strong brand, Robinhood is focused on implementing a strong digital marketing plan that provides a consistent message and brand experience to their target audience.
Robinhood has been able to achieve high levels of awareness through the launch of their mobile app, television advertisements, and public appearances.
f) Strong Social Media Presence: The Robinhood company has an active social media presence that allows them to interact with their customers while building brand loyalty.
Weaknesses of Robinhood
a) High Churn Rate: Due to its very simple business model, Robinhood is highly susceptible to churn. The mobile stock trading app that manages to keep 100% of their users for an extended period is very rare.
This means that they are highly dependent on new customer acquisition, leading Robinhood to focus solely on getting users to sign up through their website rather than mobile marketing channels like Facebook or Instagram.
b) Reliance on Stock Prices: Robinhood is highly dependent on the stock prices to bring in revenue. This means that they will need to continue their successful cost cutting measures and not be overcome by economic downturns or events such as a recession.
c) High Operating Costs: Robinhood will need to keep a tight grip on their operating costs if they want to be profitable over the long run due to their model being highly dependent on stock prices for future revenue growth.
d) Dependence on Third Parties: Robinhood is highly dependent on third parties to provide them with order flow. They are currently working out an agreement with Apex Clearing to continue using their API, which will make using Robinhood easier for Apex clients.
e) Low Monthly Active Users: Robinhood is only able to reach a small portion of the potential mobile trading audience. Most users are still using their desktop applications, which take much more time to use. Robinhood is however expanding their user base by creating new uses for their platform, including replacing traditional stock trading websites with mobile apps.
f) Low Brand Equity: Robinhood’s brand equity is very low because they don’t have large or recognizable names in the industry. They are still working on building their brand.
g) Weak Tech Support: Robinhood has very little tech support due to their simple business model and reliance on third parties.
h) Cost Cuts to Improve Sales Volume: As Robinhood continues its cost cutting measures, they must avoid any big mistakes that would decrease average deal size or lead to unhappy customers, which would drive away investors and reduce revenue growth.
Opportunities of Robinhood
Talent Acquisition and Customer Support: Robinhood is currently on a mission to expand the size of their customer support team, as well as their product and technology team, in order to release new features on their app.
This will provide a more personalized experience for customers and allow them to further integrate with other financial platforms.
b) Geographic Expansion: The Robinhood Company is currently looking to expand its geographic reach due to the increasing popularity of the mobile app.
They are currently seeking regulatory approval from FINRA, which will require millions of dollars in investment
c) Improved Internal Functions: In order to achieve success, they may need to improve their internal functions including finance, operations, and customer relations and marketing roles.
d) Improve Product Features: The current version of Robinhood is less than ideal for users who are heavy traders.
Their customer support team is hindered by the fact that their product is only meant to be used for making small transactions.
e) Expand Usage of Their Mobile App: Robinhood has the opportunity to further expand their usage of their mobile app because it allows them to provide real time updates on stock changes and gives customers instant access to the market through phones and tablets without having to log into websites or download apps.
f) Software Development: Robinhood needs to focus on software improvements for their mobile app to allow users to have a better user experience and enhance overall brand loyalty.
g) Find New Markets: Robinhood needs to find new markets such as the Chinese stock market and other Asian markets because their future growth will be dependent on it.
h) More Product Portfolio Expansion: Robinhood has the opportunity to expand their product portfolio and offer additional services to their customers.
i) Improve Their Social Media Presence: In order to increase brand awareness, Robinhood must implement a social media outreach campaign that provides a consistent message and brand experience.
j) Increase Advertising: Robinhood needs to increase their advertising budget in order to drive more users toward the mobile app by utilizing other platforms such as Facebook and YouTube.
k) Increase Number of Registered Users: Robinhood will need to continue acquisition of registered users since their product is not ideal for large traders.
l) International Expansion: Robinhood needs to expand internationally in order to increase their revenue since there is a much bigger market opportunity outside the United States.
Threats of Robinhood
a) Inconsistent message and brand experience: If Robinhood wants to be seen as a trusted and reliable company, they will need to provide a consistent message and brand experience across all media channels.
b) Potential new market share competition: As Robinhood expands into new markets, it risks being driven out of business by competitors who have more resources and a clear advantage.
c) Increased operating costs: The more new markets they go into, the more expensive it becomes to maintain their current business model.
d) Regulation: If the company fails to comply with regulations in new markets, they will risk getting shut down and having to discontinue their operation in that area.
e) Government fines: If Robinhood is found to be in violation of any government policies or regulations; they may receive large fines that could potentially put them out of business.
f) Increased competition through new apps: Robinhood will need to be on the lookout for potential new apps that offer similar services at lower prices.
g) Declining profit margins: Robinhood may encounter profit margins that are too low to cover their operating costs, which could force them to close their business.
h) Foreign economies: Foreign economies could be more volatile than the American economy, which may cause market fluctuations that hurt Robinhood’s overall performance.
i) Decreasing overall market volume: The amount of money invested into the stock market is not expected to increase forever due to economic factors and changes in consumer behavior.
j) Open source: Robinhood will need to be careful that their code remains secure and that the financial information is not misappropriated.
6. FAQs of Robinhood
Does Robinhood offer free trades?
Robinhood offers limited free trades for users who hold Robinhood Gold subscriptions. Robinhood Gold allows its users to conduct unlimited free trades on the mobile app only.
Robinhood Gold provides its users with more than just commission-free trading, but allows the user to view the market more efficiently.
Does Robinhood offer mobile trading?
Yes, Robinhood offers full mobile trading on their mobile app.
Does Robinhood offer a free app?
Robinhood is a free download on both iOS and Android.
Why does Robinhood not offer international stocks and bonds?
Robinhood does not offer international stocks and bonds through their platform because of the difficulty involved in satisfying different regulatory requirements for each country of operation.
Robinhood also does not offer international stocks due to the low volume of global equities that are traded.
How much do Robinhood customers pay for trades?
Robinhood customers who trade on the app and hold a Robinhood Gold subscription pay $10 per month for access to free trades and other special features.
Is Robinhood stock safe?
Yes it is safe; Robinhood is a registered member of the Securities Investor Protection Corporation (SIPC), which protects securities in case of a failure.
Robinhood’s financial accounts and assets are kept separate from its subsidiaries, which keeps them safe in case of a bankruptcy.
They also keep all customer assets in separate and segregated accounts, which require that no account has access to another account’s assets.
What market does Robinhood operate in?
Robinhood operates in the U.S. Nasdaq market.
Who is behind Robinhood?
Robinhood is a New York-based company built by two entrepreneurs Vladimir Tenev, and Baiju Bhatt.
How is Robinhood different from other apps?
The problem with most stock trading apps is that they charge high fees for transactions and often don’t offer many features or options for customers looking to trade.
What is bad about Robinhood?
Robinhood requires the user to have a bank account with one of their partnering banks in order to use Robinhood Gold. They also do not offer live trading on their platform.
Robinhood app is only available for Apple devices, but they are working on releasing an Android app by the end of 2017.
Does Robinhood allow investors to invest their own money?
No; you can only trade with the cash that you deposit into an account on Robinhood. Robinhood is a mobile based brokerage that claims to offer free stock trading.
What is Robinhood’s Future Growth Potential?
Robinhood has 10 million users and is growing steadily. They target college students as their main market.
They believe that this will keep their app growing despite the recession and allow them to compete with other brokerages for investor share of the market.
In fact, they estimate that by 2020, Robinhood may have over 20 million users.