Robinhood IPO Filing Shows Power of the Meme-Stock Boom

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The Wall Street Journal 01 July, 2021 - 02:03pm 24 views

When will Robinhood IPO?

Robinhood. After years of speculation, Robinhood is planning to go public in 2021. On March 23, 2021, the company announced on its blog that it confidentially submitted early IPO paperwork to the SEC. nerdwallet.comInvesting - 10 Upcoming IPOs to Watch

The stock-trading app counted 18 million users with funded accounts at the end of March, more than double a year earlier. Revenue in the first quarter of 2021 more than quadrupled to $522 million. The daily average number of cryptocurrency trades on Robinhood expanded by a factor of 14, and net value of cryptocurrencies held in Robinhood users’ accounts rose to $11.6 billion from $481 million.

Meanwhile, users transferred their assets out of Robinhood at nearly 10 times the average rate after it curbed trading in GameStop Corp. and other high-flying stocks in January, a decision that also resulted in about 50 class-action lawsuits. Around 81% of its first-quarter revenue stemmed from a practice criticized by the chair of the Securities and Exchange Commission. And the company is facing a raft of investigations, with federal prosecutors going so far as to execute a search warrant to seize the cellphone of Chief Executive Vlad Tenev.

Robinhood, which plans to list on Nasdaq under the ticker HOOD, is set to be the buzziest company to tap the U.S. IPO market this summer, especially since up to 35% of its offering is being allocated to its own trading customers. The listing could value the stock-trading app at $40 billion or more, The Wall Street Journal previously reported.

But the company will have to answer for a long list of risk factors and missteps when making its pitch to potential investors. It will also have to convince them that the company can keep growing in the absence of the pandemic stay-at-home orders, government stimulus checks and social-media buzz that fueled its popularity.

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Dogecoin was 34% of Robinhood's crypto-trading revenue in 1st quarter

Markets Insider 01 July, 2021 - 04:32pm

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Sizing Up Robinhood: What We Learned From the Brokerage Disrupter's IPO Filing

Barron's 01 July, 2021 - 02:10pm

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Robinhood has been disrupting the brokerage industry for years, without revealing much about its inner workings or growth rate.

That all changed on Thursday when it released its first major public filing, the prospectus for its initial public offering, or S-1, with the Securities and Exchange Commission.

Investors will look at several different numbers to determine how to value Robinhood. The company lost $1.4 billion in the first quarter, but investors may be more focused on things like customer account growth and revenue to help them value the stock.

Here are a few key numbers in the filing that shed light on Robinhood’s growing place in the financial universe, and on some of its risks.

User growth: Robinhood has been adding users at an incredible rate, faster than its peers. In the S-1, the company said it had 18 million funded accounts as of March 31, up from 12.5 million at the end of 2020 and 5.1 million at the end of 2019. That indicates that Robinhood added almost 50% more customers in just three extremely tumultuous months, a period when the company was criticized for halting trading in certain stocks during the GameStop (ticker: GME) mania.

The Financial Industry Regulatory Authority, or Finra, disclosed in an enforcement action on Wednesday that Robinhood has 31 million total accounts, with 18 million of those being funded. That indicates that Robinhood has many users without any money in their accounts — perhaps using the app to track the market without playing it. All those unfunded accounts paint a confusing picture of Robinhood — for instance, although the company says it has 18 million accounts, it had more than 20 million active users in January, when the meme stock madness took hold.

Customer account figures show that Robinhood is gaining on brokers with much longer histories. Charles Schwab (SCHW), the king of the discount brokers, reported 32.1 million active retail accounts as of the end of the first quarter. Schwab’s heft is a result in part to its decision last year to buy TD Ameritrade, and to fast growth during the pandemic. Fidelity had about 29 million retail accounts at the end of the first quarter, with 83.4 million total accounts.

Average customer account size: Robinhood’s users are generally younger than those at more established brokerages — about 31 years old on average, according to Finra and previous company statements. The one downside to that user base is that customers often have smaller account sizes. The company did not break down exactly how much the typical Robinhood customer has in their account, but Finra said in its enforcement action that the median Robinhood customer had $240 in an account, and the average had about $5,000 as of February. Based on Robinhood’s securities filing, it is possible to back into a current average account size of $4,500. That’s a far cry from more established brokerages like Schwab, where analysts estimate the average account size is more than $100,000.

Revenue: Robinhood’s revenue is rising fast, propelled by an enormous surge in retail trading. The company revealed that it took in $959 million in revenue in 2020, up from $278 million in 2019. And it reported $522 million of revenue in the first quarter of 2021, up from $128 million in the first quarter the year before. At $522 million, Robinhood is theoretically operating at a run-rate of more than $2 billion in revenue for 2021. That could justify a valuation of more than $20 billion for its stock, given that other fast-growing financial technology stocks often trade at more than 10 times revenue.

But it’s worth looking at that growth in comparison to the company’s competitors. While Robinhood is hot today, other brokers are also growing fast too. Schwab reported $4.7 billion in revenue in the first quarter, an 80% increase year over year. Schwab is more effective than Robinhood at making money from each of its users. Even though Robinhood has 60% as many customers as Schwab, it’s bringing in just 11% as much revenue.

Robinhood makes 80% of its money from so-called payment for order flow, which consists of payment from market-makers who execute orders for Robinhood customers. That is a business model that depends on high trading volume, and one that’s now attracting negative attention from regulators, including the SEC.

What’s more, Robinhood made nearly half its transaction revenue in 2020 from options trading, which is also receiving more scrutiny from regulators because of its inherent risks. Options made up 38% of its transactions revenue in the first quarter.

Crypto: Robinhood profits off of payment for order flow in cryptocurrency trading too, and crypto is a growing revenue-driver. In the first quarter, it accounted for 17% of the company’s revenue, up from 3% in 2020. Crypto also makes up 14% of the company’s assets under custody. Because cryptocurrencies are so volatile, companies that depend on them for even a small fraction of their revenue sometimes trade in tandem with popular coins like Bitcoin and Dogecoin. In fact, Dogecoin — a crypto favored by Elon Musk that started as a lighthearted experiment — accounted for 34% of the company’s crypto transaction revenue in the first quarter.

Robinhood’s increasing reliance on crypto could help it when the industry is hot, but cause sharp swings to the downside, too.

Write to avi.salzman@barrons.com

Robinhood has been disrupting the brokerage industry for years, without revealing much about its inner workings or growth rate.

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