Retail investors are ‘buying more and more’ as the market plunges: Public.com COO

Public.com COO Stephen Sikes joins Yahoo Finance Live to discuss how retail investors are navigating stock market volatility, the growth of the platform, and payment for order flow models.

Video Transcript

- Well, stock market volatility and inflation have led to a dramatic pullback in the retail trade, with net retail inflows being cut by more than half. That's at least according to data from JPMorgan. Joining us to discuss is Public.com COO Stephen Sikes. We should mention Public is an investing platform that allows users to buy fractional assets, including stocks and ETFs. So, Stephen, just give me a sense of what you have seen on your platform.

STEPHEN SIKES: Yeah. Thanks for having me, Akiko. For sure. Like you said, first off, for your viewers that don't know, Public, we're an investing platform focused on helping our members build modern portfolios and doing it in a way that we think is always aligned with the member's best interests. So that informs everything we do, from the products that we build, the way we run our business, and the community and content that we introduced in the app.

So I think what we've seen from our investors lately actually bucks a bit the trend of what we've been seeing in top line headlines across the industry about retail sentiment. Some of this is probably due to the nature of who our investors are, right, people who are focused on the long term and, frankly, are mostly investing more out of sort of cash flows and income. And as we see, the labor market continues to be strong. We see they still have the same disposable income and are maintaining the same sort of investment and savings rates.

So what that looks like as we continue to see the market fall is our investors are buying more and more. And they're continuing to increase their sort of net flows into the market. And their net buying behavior becomes greater and greater as we see the market plunge to new lows.

- So this idea that retail traders are no longer buying the dip, you're saying that's not exactly what you're seeing on your platform?

STEPHEN SIKES: That's not what we're seeing at all on our platform.

BRIAN CHEUNG: Stephen, Brian Cheung here. I wanted to kind of ask about the types of people that are using your platform. Obviously, the retail sector when it comes to not necessarily retail within the context of target, for example, but retail investors that have gotten into the game over the course of 2021. We know what happened with the meme stock trade. What are you seeing in terms of that trend? Because the talking point is that the enthusiasm for retail trading is not as hot as it is in 2022 as it was in the beginning/middle of 2021.

STEPHEN SIKES: Yeah. I think that's a good question. Thanks. And, Brian, great to speak. I don't think we're going to-- I mean, that early 2021 period was absolutely unprecedented in terms of the level of attention that was applied to the markets overall, and specifically to retail investors. And, no, we are not at sort of that level of interest in the broader market. So I think where we see that mostly reflected in our business is mostly on sort of the day to day new growth of members and the new people that are coming to the market.

But for people that are already in the market, people that have entered the market over the last several years, of which, again, our platform is still relatively young, so we disproportionately skew towards people who are entering the market in the last few years, the behaviors we're seeing are that they are just as engaged as they've ever been. And they're continuing to see this as an opportunity to, honestly, invest at better prices for the long term.

BRIAN CHEUNG: And, Stephen, I want to use that as a segue to talk about what differentiates your platform from others, which is the fact that you said last year you would abandon payment for order flow as a model. Now, obviously, the peak and interest in payment for order flow was during that meme stock trade when the likes of Robinhood were disclosed to have been using their business model to actually give some of the broker dealers and the clearinghouses a share of the profits that they're getting when they can get improvement on trades. How have you seen that as a boost or possibly a negative to the types of traders that you're trying to onboard because that was, again, a very big part of that narrative last year.

STEPHEN SIKES: We've built our brand and our business from the ground up being focused on doing what's best for investors and aligning our business interests with, ultimately, our members' interests. And that message, as you reinforce it through the product, through the business decisions, including rejecting PFOF, has really helped be the tailwind for our business to grow. And I think what we've seen is in financial services, particularly among the younger generations, trust is the most important thing in who they do business with.

And in the sort of-- we've all lived through the great financial crisis and the massive impact that had on overall sort of trust in the financial services, is we can be a brand that comes to market and says, hey, you can trust us. We've built our business consciously to be aligned with your interests. And we can demonstrate it here, here, and here. That's been an incredibly powerful sort of tailwind for us.

- Stephen, this week we got news that FTX, which is, of course, one of the largest crypto exchanges, is now getting into stock trading as well. Commission-free trading. And I wonder, when you look at this space, is there enough for all these players? And I ask that because Sam Bankman-Friend, who of course heads up FTX, also made some headlines when he took a stake in Robinhood. Obviously, the filing doesn't show that he's looking to be active in that trade. But it does beg the question when you've seen declines in names like Robinhood whether there's some consolidation that's waiting on the other end.

STEPHEN SIKES: Yeah. I'm not sure about market consolidation or what's to come. But I can speak to sort of the overall addressable market. And what I tell our team sort of week in and week out is it is a giant addressable market. Robinhood, among the sort of app-based platforms, is probably the largest at this point. But it's still just a fraction of the size of Schwab and some of the earlier sort of legacy online brokers.

I think last I counted, I think it's something on the order of 50 or 60 times the assets that Schwab has relative to Robinhood. So to think about just the addressable market that we're operating in, it's enormous. And I think as long as individual companies like Public continue to focus on executing, building business models that are aligned with their members, I think the sky is genuinely the limit.

BRIAN CHEUNG: And, Stephen, I want to ask about something that maybe isn't always slipped into the conversation about brokerages but I think it's really important, which is kind of the engagement aspect of it, especially with the fact that fees are no longer necessarily a differentiating factor, at least for those using PFOF. It really is about the community that you build on the app, getting people engaged. I see that you run Spaces on Twitter to discuss what's going on in markets all the time. How important is that in terms of competing with the likes of Robinhood and the other brokerage apps, which seems like there's a lot of them out there these days.

STEPHEN SIKES: Yeah. We believe one of the ways to differentiate and, really, to serve our members who are focused on being great long-term investors is making sure they have all of the sort of content, context, and information required to make great long-term investment decisions. And we see that sort of behavior, even in markets like this, actually continues to drive ongoing engagement in a way that's really, really positive for the long run.

We look at some of the statistics on our app, and we see really encouraging ones like the more time our members spend engaging with the community and with the content that we deliver, the more diversified they're likely to be. And it actually has a very linear relationship. So the longer and more time they spend investing in understanding what's going on in the markets, ultimately the better decisions they're making. And we think that in the long run, those will correlate to them having the best possible financial outcomes.

- Well, Stephen, it's good to have you on on this Friday. I hope to have you back on the show again soon. Stephen Sikes, Public.com COO.