Robinhood Markets is a winner (growth in revenue and users) and a loser (a history of operating losses), and the investing app’s fate is now up to stock traders following its initial public offering. How apt.

On the marketing front, Robinhood (Nasdaq: HOOD) has shown the ability to grow its business recently while spending less on digital and paid marketing.

It cost Robinhood $15 on average to acquire a customer in first-quarter 2021, down from $20 in full-year 2020 and $53 in 2019. Costs, though, could be heading higher. Robinhood’s IPO filing said: “We expect our customer acquisition costs for our current product offerings, on a per customer and total basis, to increase in future periods.”

What’s under the HOOD:

Robin lays an egg

Robinhood’s stock had a poor debut, dropping 8.4% from its $38 IPO price to close at $34.82.

19.6% of revenue went into marketing in the first quarter

That’s about even with marketing costs as percentage of revenue in 2020 (19.4%) and down sharply from 2019 (44.9%).

Marketing spending is growing ($102 million in the first quarter vs. $70 million in the same quarter a year ago; $186 million in 2020 vs. $125 million in 2019). However, marketing costs are rising far more slowly than revenue ($522 million in the first quarter, four times the year-earlier revenue; $959 million in 2020 vs. $278 million in 2019).

New customer referral rewards account for more than half of marketing costs

Robinhood poured about 57% of its first-quarter marketing spending into referral rewards (Robinhood Referral Program), up from 43% in 2020 and 23% in 2019.

Under this program, referring and referred customers get a share of stock with a value ranging from $2.50 to $225. (About 98% of participants get a share worth $2.50 to $10.)

Robinhood draws each reward randomly from an inventory of shares held exclusively for this program. The inventory consists of shares in companies that are widely held in customers’ accounts. Stock rewards also are available to customers who sign up through paid marketing channels.

Robinhood has reduced spending on digital and paid marketing

Digital and paid marketing efforts account for a shrinking share of marketing costs (about 32% in the first quarter vs. 42% in 2020 and 72% in 2019).

Robinhood cut digital and paid marketing spending by 15% to about $33 million in the first quarter vs. the same quarter a year ago even as it sprung for its first Super Bowl commercial.

Spending on digital and paid marketing fell 14% to $78 million in 2020.

The reduction in digital and paid marketing came as Robinhood said it “strategically focused our marketing efforts through the Robinhood Referral Program, which generally has lower direct expense rates as compared to other marketing methods."

Four in five new customers join Robinhood organically or by referral

More than 80% of new customers in 2020 and first-quarter 2021 joined the platform “organically” or through the referral program.

Robinhood considers a customer to have joined organically if it can’t attribute the customer acquisition to a paid marketing channel, such as broad-scale advertising or clicking on an online ad, or to the referral program.

“We have built a strong brand and grown our customer base primarily through customers joining organically or through the Robinhood Referral Program, and we have achieved significant scale with relatively little investment in sales and marketing,” Robinhood’s filing said. “We have historically grown awareness of our platform by delivering products and features that our customers love, which has led our customers to share Robinhood with their friends and family.”

Robinhood expects organic growth and referrals to “continue to be a primary driver for us over the near to medium term,” the filing said. But Robinhood sees an important role for paid marketing: “We plan to increase our marketing in the future and anticipate that our digital and paid marketing efforts will drive higher brand awareness that can further accelerate our growth.”

Robinhood has amassed 21.3 million active users

Number of monthly active users in June, up from 11.7 million in December 2020; 4.3 million in December 2019; 3.3 million in December 2018; and 1.8 million in December 2017. Average revenue per user: $109 in 2020.

More than half of users are newbie traders

Robinhood was the first brokerage account for more than half of the company’s customers. The IPO filing said: “We believe we are meaningfully expanding the size of the defined market—bringing in participants who would otherwise not be involved in the financial system. Expanding the universe of investors has been, and we expect will continue to be, a significant driver of our market-leading growth.”

Robinhood said it in 2020 garnered more than half of all new app downloads among mobile investing and trading platforms in the U.S. The company said it designed its platform to be “easy to use, informative and familiar in look and feel for a generation of mobile-first customers.”

Nearly half of users are betting on crypto

More than 9.5 million users traded cryptocurrency on Robinhood in the first quarter. Crypto, including Dogecoin and Bitcoin, accounted for 17% of Robinhood’s revenue in the first quarter, up from just 4% in fourth-quarter 2020.

Robinhood users may buy up to 35% of its IPO shares

The company reserved up to 35% of shares in its initial public offering for sale to its users. That move could be rewarding or risky for the company and users depending on how the stock performs.

“Any negative experiences our customers have in connection with their participation or attempted participation in this offering could diminish customer confidence in us and our products and services…,” the IPO filing said. “Because our brand and our reputation are two of our most important assets, any negative perceptions about us by our customers or the media could have an adverse effect on our business, financial condition and results of operations.”

Robinhood has a history of operating losses

Robinhood recorded operating losses from its start in 2013 through 2019. It reported net income of $7 million in 2020—and then a net loss of $1.4 billion in first-quarter 2021. The IPO filing warned: “We have incurred operating losses in the past and may not maintain profitability in the future.”