My Thesis on Robinhood

tl;dr

I don’t like Robinhood. I think it preys on our worst instincts and profits handsomely from them. And yet—I’m buying the stock. Why? Because I understand the business, and I believe it’s primed for outsized growth as it evolves into a finance “super app.” This post lays out the full thesis, the moral tension, and how I’m sizing the position.

Why I’m buying a business I don’t like

If you’ve followed me for any amount of time, you know my relationship with Robinhood is… tenuous. The Verge once dubbed it a “nihilistic finance app,” and that’s not far off. I don’t think it’s good for society. I do think it gladly profits from financial ignorance.

So why own it?

Because investing starts with understanding the business—Buffett’s “circle of competence.” Robinhood sits squarely inside mine. For the last four years I’ve been building Flank—the anti-Robinhood—focused on real investing, not trading. Along the way, I’ve learned how everyday people actually behave with money. Robinhood knows this too, and they’ve engineered product and incentives around those behaviors. That machine is monetizing better every year.

If I can see the engine clearly, I can value it rationally—even if I dislike it.

The engine: a gambling app dressed as an investing app

Robinhood’s growth is real. In 2024, revenue was up meaningfully and net income skyrocketed. A big driver: options. In their 2024 annual report, options order flow and related revenues grew sharply and made up a sizable share of total revenue. Independent research (MIT and others) shows retail options traders, on average, lose money. The house does not.

Robinhood is now leaning even harder into true “house” economics:

Event predictions: You can bet on March Madness outcomes directly in-app, with more markets coming. This isn’t investing; it’s gambling.
24-hour markets + Robinhood Legend: They’ve stated a goal to “win” the active trader (read: gambler) segment with around-the-clock access and a premier trading tier.
International expansion: They’re pushing beyond the U.S. (UK now; more to follow), widening the funnel for active trading.

Look at public comps: pure-play gambling platforms (DraftKings, Flutter) command large valuations on the back of high-frequency, high-margin activity. Robinhood gets a slice of that profile plus an investing and cash platform layered behind it. In effect, I’m paying for the casino and getting a budding wealth stack for free.

The other side of the house: a credible investing & wealth stack

Here’s where the thesis gets more interesting (and, yes, more conflicted):

Wealth management push: Robinhood is moving deeper into the RIA/wealth space (e.g., TradePMR acquisition plans; ~$40B AUM platform). Combine competent engineering, strong design, and a compliant RIA chassis—add AI—and you can assemble a respectable mass-affluent offering.
Robo-advisory potential: Betterment set the benchmark here, but Robinhood has distribution: ~25M+ funded customers and push-notification reach at scale. A low-friction, paid robo tier is a straightforward upsell.
Brand and loyalty: Despite controversies, their brand recognition is top-tier among retail finance apps. If they segment the base cleanly—gamblers vs. investors—they can monetize the former while maturing the latter.

Will they fully reconcile fiduciary duty on the wealth side with a gambling-centric trading engine? I’m skeptical—but they don’t need perfect alignment to grow. They need just enough guardrails and just enough value in the investing stack to keep “investors” from churning out while the trading side mints cash.

Strategy clarity (straight from management)

They’ve basically told us the playbook:

Win the active trader (gambler) market. Build the best retail trading venue: 24/7 access, advanced tooling, premium tiers.
Go global. Extend that venue internationally.
Deepen wealth. Turn the app into a finance command center: cash, passive portfolios, advice, and eventually fuller planning.

That’s a classic barbell: high-margin frequency on one end; sticky AUM and advice on the other.

The moral quandary (and how I’m squaring it—for now)

I’m building Flank to help people invest, not trade. So how can I justify owning Robinhood?

A few principles guide me:

Consent & legality: Adults should be free to gamble within legal bounds. I don’t need to like it to accept it as reality.
Separation between owning stock and selling product: Buffett/Munger once wrestled with the ethics of owning a tobacco stock. Their point: owning shares isn’t the same as manufacturing the product. There’s nuance, and reasonable people will disagree—but it’s a framework.
Pragmatic “cynical hedge”: People who want to gamble will gamble, with or without me. If/when they lose and aren’t permanently burned, I want Flank to be the on-ramp back to intelligent investing.

I’m not celebrating the casino. I’m acknowledging it—and building the alternative.

Key risks to the thesis

Regulatory & legal: Event-betting, options, and 24/7 trading live under shifting oversight. A major rule change or lawsuit could compress take-rates or shut lines of business.
Reputation & trust: Another outage, scandal, or mis-selling episode could stunt the wealth-side flywheel and increase churn.
Unit economics miss: Premium tiers and wealth monetization may lag, leaving a business over-dependent on transactional, cyclical revenue.
Competition: Incumbents (Fidelity, Schwab) and fintechs can copy features and cross-subsidize with broader product suites.