How Did Robinhood Investors Do In 2023?

There's a new "diamond hands" in town...

I think there’s a lot you can learn from Robinhood investors — and I think over the last three years, Robinhood has learned the same. 

During the pandemic, I cataloged the rapid rise of the broker-dealer for robintrack.net, a website built by my friend, Casey Primozic. It showed near real-time data on the stocks that Robinhood’s fast-growing user base had an affinity for, chronicling the “mainstreamization” of investing — which saw young people use the platform to convert their stimulus checks into shares of high-flying growth names. 

Even after the company shut down the API, suggesting that it was wielded by institutions against less-experienced market newcomers, I continued to track and catalog Robinhood’s rising star — and the success (or failures) of the Robinhood crowd. 

An Abbreviated History of Robinhood’s Pandemic Boom

When Robinhood investors won, so did Robinhood. The company booked billions in revenue during the pandemic. But when its users started to lose, it became a convenient pariah — and not because the company was somehow engaged in a conspiracy to turn the stock market into a casino or freeze stocks so that the “suits” could win.

Rather, Robinhood began to transcend markets and became a centerpiece of pandemic pop culture — but when all eyes were on the company, the high-flying returns of retail came crashing down as growth stock hype died a death by a dozen rate cuts. Investors lost $54 billion of their own money in 2022 and that became a problem for Robinhood, which watched as a third of the company’s assets under custody (AUC) were lost and millions of users fled the platform with less than they started with.

Today, less than half of the company’s 23.5 million funded accounts are monthly active users. And those remaining are still valuable, but Robinhood has signaled a desire to center its new Robinhood Gold subscription, rather than the long-lucrative payment for order flow revenue which helped it capture the attention of Wall Street investors.

In the spirit of historicism though, I figured it was as good a time as any to touch on how retail did — and how Robinhood spent 2023 and started its 2024. Thankfully, there’s good news for both Robinhood investors and the brokerage.

How Did Investors Do in 2023?

Among investors that stuck around in 2023, there was lots to celebrate.

Last year, Robinhood investors cumulatively made over $23.3 billion, outpacing the S&P 500 in the first and fourth quarter. Two factors — quality stock picking and product changes pushing ETFs and other diversified strategies — played a big role in those returns.

Quality stock picking

Robinhood investors always had a bias for large-caps, even during their unfortunate love affair with growth stocks. Megacaps like Meta, Amazon, Apple, Tesla, and Microsoft have always been a staple of Robinhood’s Top 100 list — and the Robinhood Investor Index continues to show this bias towards largecaps and megacaps.

This bias helped a lot last year. In 2023, 35 of Robinhood’s Top 100 stocks outperformed the S&P 500 — while 13 doubled in value. Those are impressive odds considering that 12 of the most popular stocks on Robinhood are actually ETFs which track popular market indexes.

In short, 39% of the picks that Robinhood investors chose outperformed — while 14% of the picks doubled. However, critical eyes might ask: what came first? The returns or the retail investors? It’s hard to say for sure, but Robinhood’s own investor barometer offers a few clues.

Rise of ETFs

Two years ago, I opined (also in This Week in Fintech) on how Robinhood was making product decisions intended to motivate users to start thinking long-term. They added new features which steered many users towards diversified strategies such as exchange-traded funds — which have become popular among the half-a-million-or-so users with retirement accounts on the platform.

Since then, the number of ETFs owned by Robinhood users has gone from 3 (in 2022) to 12 (end of 2023.) Many of these strategies are passive funds which track major indexes like the S&P 500, Nasdaq-100, and Russell 2000. And the pivot towards ETFs represents a meaningful change from the Robinhood crowd of years past.

Exchange-traded funds have outperformed many individual stocks, which have fallen out of fervor in recent years during the collapse of SPACs and growth stocks. And as you can imagine, this has contributed a great degree to Robinhood users’ recovery in 2023.

How did Robinhood do in 2023?

The losses incurred by Robinhood investors in 2022 taught the company that it couldn’t build a serious financial app for unserious investors. They made many efforts to push existing users into more serious, stable investments — and are seeking to win the business of serious investors using competitor services with the promise of free money.

However, 2023 was a quiet year for the company (but if you’re interested, you can read all about its money moves in this paid article I wrote for This Week in Fintech Signals.). Tl;dr: The company made the majority of its money from net interest revenues and launched just two major new features: 24-Hour Market and the upsized 3% IRA Match for Robinhood Gold customers.

But nonetheless, 2023 was a bridge to 2024, which has been a strong start for the company and signaled clearer expectations for its future.

The future will be Gold

Robinhood has gatekept many of its best features behind its Robinhood Gold subscription, a $5/mo service which unlocks 5.25% interest for cash sweep, offers a 3% IRA match, and boasts a limited-time offer to match up to 3% of transfers into its retirement product with a few conditions.

Those efforts have been enormously successful according to CEO Vlad Tenev — and you can see it in the sheer number of people who are now paying Robinhood for access to those features.

At the end of Q4 2023, over 1.42 million users were subscribed to Robinhood Gold, up 25% since the company launched its retirement product in Q4 2022. That represented 13% of the company’s monthly active users. And that figure will be top-of-mind when the company reports its first quarter 2024 earnings on May 8.

A new app design, the launch of the company’s new Robinhood Gold Credit Card, and a commitment to match up to 1% of all deposits into the brokerage have only sweetened this deal. In many ways, it’s starting to feel like Gold is a no-brainer for most of the average user. That’s why it will become the barometer for its success. It’s too early to say for sure, but the early indicators are extremely promising — and stand fair odds of transforming the brokerage into a serious contender with financial services giants.