As we adjusted to life in our homes during the pandemic, many of us turned to our mobile devices for work, play, and essentials. In fact, the average U.S. adult spent 4 hours and 16 minutes per day on their devices in 20201, with certain categories of mobile applications (apps) in Particular reaching new heights Of popularity and use. Together, these categories helped global app Downloads hit a record 218 billion in 2020, a seven percent increase year-over-year.2
One such app category—food delivery apps—especially flourished during the pandemic since so few people were dining out or even going to the grocery store due to occupancy limits and health concerns. Whether having food delivered from your favorite restaurant or having your groceries delivered via Instacart, food delivery apps became more of a ‘must have’ than a ‘nice to have’ during COVID-19.
Another type of app that had been growing in popularity, but then surged during the pandemic were trading apps or apps used for trading stocks and cryptocurrency—in part buoyed by government stimulus payments that added to household balance sheets. On average, U.S. households saved 36 percent of their CARES Act payments and used another 34 percent to pay down debt.2 Households also expected to save at least 45 percent of any future economic impact payments, further increasing savings balances.
What is app trading?
App trading or mobile investing aims to put trading power in the hands of the average person who typically would not trade stocks or cryptocurrency. With a relatively small deposit of a few hundred dollars, a new user can begin trading in the stock and cryptocurrency markets almost immediately. The idea is not novel. E-Trade began as a platform for the everyday person to trade online rather than going through a broker.3 However, trading on mobile devices had not gained momentum prior to the pandemic. With money and time on their hands, novice investors dipped their toes into the stock market pool—and where better to begin than an app that facilitates no-commission trading of a few shares at a time?
Prior to the pandemic, finance app downloads were averaging approximately 98 million per quarter. During the pandemic, this increased to an average of nearly 138 million downloads per quarter, reaching close to 175 million downloads in the first quarter of 2021, a 34 percent increase year-over-year. Trading in stocks and cryptocurrency drove the growth of downloads led by popular apps from Robinhood, Coinbase and WeBull. Traditional finance companies benefitted from the trading app frenzy, which resulted in a record number of downloads for Fidelity and TD Ameritrade in the first quarter of 2021.
The impact on CRE
So, what does app investing mean for CRE? Waves of app adoption have in the past resulted in substantial absorption of CRE space, particularly in the office and data center sectors. Uber, the most popular rideshare app, grew its office portfolio from a little more than 30,000 square feet (sf) in 2012 to nearly 4.4 million square feet (msf) as of year-end 2020. As app trading companies carve a niche that had been untapped by financial institutions, their need for CRE space will increase.
Office Leasing Strategies
Revenue and venture capital funding growth has already translated into office space absorption in some markets. Robinhood, one of the main app trading players, has offices in the Bay Area; Lake Mary, Florida; Denver; and London, in addition to its Menlo Park headquarters. It is also looking to open its first office in New York City, seeking approximately 60,000 sf of office space to occupy.4 Robinhood also plans to add hundreds of new jobs as it expands in Texas and Arizona. In total, Robinhood has added nearly 265,000 sf of office to its property portfolio in the last five years.
Companies focused on mobile investing platforms have leased more than 340,000 sf of office space in the last four years.
A newer player to the app trading movement, WeBull, only has one office location on Wall Street. They entered the market in 2017 and have more than 11 million registered users. WeBull is the only trading app that employs a live help desk during trading hours. As use and revenue grow, they are likely to expand into markets other than Manhattan. Another major player, Coinbase, recently IPO’d and expanded their office footprint into Manhattan signing a 30,000 sf sublease at 55 Hudson Yards5.
Major financial institutions have announced their plans to return all their staff to offices this fall with some hybrid work allowed. Additionally, major tech titans Apple and Amazon have also announced a return to the office for their staff along with hybrid work arrangements. Mobile financial tech companies will likely follow their peers and return to the office, setting the stage for future office expansions.
Direct Data Center vs. Cloud Utilization Strategies
The recent shift from on-premises data centers to large-scale cloud services has proved useful for many application developers, as these platforms offer the ability to scale computing power based on need. Flexibility is key for many as demand for workloads can be difficult to predict, particularly when launching new products or during times of financial volatility. Each company is thus required to make an initial choice and then adjust as usage indicates. Does the product get developed cloud native (i.e., on a major platform from the beginning?), begin in a private data center or colocation environment and then shift (potentially saving cost during the development cycle)?, or get created in a hybrid environment (a mix of all options) from the start?
Robinhood has utilized Amazon Web Services since the beginning of its application, citing the standard development and analytics tools available on the platform. These tools enabled the trading application to grow quickly with less staff than might be expected, keeping client fees minimal.
Older companies that began prior to the advent of cloud computing may still find value in their own facilities. E-Trade has long operated its main data center in the Atlanta suburb of Alpharetta, alongside their largest back-office operation in the country. The company even found a way to monetize this building in a standard real estate play, selling and leasing back the property to the now-defunct Carter Validus Mission Critical REIT in 2014 for $56.7 million. The fund then on-sold the property to Legacy Investing for $64 million in 2018, showing the continued appetite from investors for net-leased data centers with good-credit tenants. As E-Trade was recently acquired by investment powerhouse Morgan Stanley, it remains to be seen if this will cause a shift in IT strategy.
Stock and Cryptocurrency trading in Everyone’s Pocket
Of course, we can’t ignore the GameStop/Robinhood saga that captivated the world in February 2021. The attention that trading apps garnered during this contentious period led to record downloads across all trading apps and made app trading even more popular.
Inevitably, over time, some of the app downloads by novice investors looking to strike it rich may be abandoned. However, the main players will probably expand their foothold in the industry through IPO’s, M&As and expanding their financial offerings to remain competitive. Their growth is likely just getting started.
Hype or Sustainable Growth? Follow the Money
Venture Capital Flowing: Venture capital flows into the app trading industry have grown steadily over the last four years. The record fundraising in the first quarter of 2021 was led by Robinhood which raised $3.4 billion for its platform. Even outside of Robinhood, funds raised in Q1 2021 were nearly half of the best full year on record (i.e., 2020).
Other app trading platforms with significant raises in the first quarter included Public.com, a New York-based mobile brokerage app that raised $220 million in Series D funds and WeBull which raised $150 million in Series D funds.
Valuations Rising: Valuations have followed growth and have led to some exits from VC funding status via IPOs, SPACs and M&A strategies. There are now eight different trading apps that are worth more than one billion dollars. As of Q1 2021, the total valuation of those companies is more than $110 billion.
Revenues Growing: Despite the no-commission investing philosophy of some trading apps, revenues have grown exponentially as their user base and assets under management have grown. Investment apps generate revenue by charging fees to market makers who execute the trades. Cryptocurrency trading revenue comes from trading and withdrawal fees, and some apps charge to hold large crypto balances. Robinhood’s 2020 annual revenue jumped 500 percent year-over-year to $673 million.6 Binance benefitted from the cryptocurrency rush with 2020 revenue totaling $1.2 billion.