My updated Thesis on Robinhood (I'm selling)

My original thesis on Robinhood from April of 2025: https://www.flankinvesting.com/p/ac109a6c-b21d-4e3b-bdd3-7437d0656ecc

In case you don't want to read it, my basic thought at the time when I wrote this thesis was that, because I'd been working on Flank for the last five years, I understood what Robinhood was doing and therefore it was within my circle of competence.

My thesis hinged on the fact that they were going to become a financial super app. They were just breaking into prediction markets at the time.

In essence, they were putting the casino inside of the bank.

Holy cow I was right.

I'm currently up 132% on the investment, even after their recent sell off.

I really do believe that a lot of things are highly valued right now. I'm in the process of evaluating what I believe to be my riskier investments and beginning to battening down the hatches for a possible market decline.

So let's see if it's time for me sell out of Robinhood or not

What's Changed?

Revenue is decelerating. Robinhood had a rough Q1. It only grew revenue by 15% in that quarter, whereas for all of FY25, revenue grew by 52%.

So is this slowdown a change in the business? Do I need to update my model, which assumed a 30% annual growth rate?

I think so.

And that's based on how the revenue breaks down

We can see that Transaction-based revenues only grew at 7%, whereas Net Interest revenues grew 24%.

Now, the 7% on transaction revenue is hiding something, and I want to be honest about it. Crypto revenue fell 47% in the quarter, from $252 million to $134 million. Back that single line out and the rest of the trading business was fine: options up 8%, equities up 46%, and prediction markets up 320% to $147 million. So the 7% is not "trading is dying." It is "crypto is cyclical," which is exactly the risk I flagged two years ago. The casino has a bad month when the dice go cold. Fine. I knew that.

What I actually care about is the other half of that breakdown. Net interest revenue grew 24%, and in dollar terms it was the single biggest growth engine in the quarter. Transaction revenue added about $40 million year over year. Net interest added almost $70 million.

Here is why that matters. Net interest revenue does not come from trading. It comes from Robinhood acting like a bank. They earn it on margin loans to customers, on the cash sitting idle in accounts (cash sweep), and on credit card interest from the Gold Card. The engine behind it is the margin book, which just hit a record $17 billion, up 93% year over year.

Confirming, because my whole argument was that Robinhood profits from financial ignorance. Doubling the margin book means more retail investors borrowing money to gamble. That is the house extending credit at the table. Of course it works. It is also the exact behavior I built Flank to fight.

Complicating, because a business that grows by lending is a lower-quality business than the asset-light machine I bought.

This carries credit risk, and margin and credit card balances go bad fastest with exactly the customer base Robinhood serves. It is rate-sensitive, and Robinhood flat-out said net interest was held back by lower short-term rates, while we sit in a cutting cycle. And the market should not pay 50 times earnings for a lending book the way it will for a trading network.

Sentiment: Bearish, and I'm going to sell out of my position.

Very happy to collect over double what I originally invested and move on.