Robinhood Inventory: Go Lengthy or Brief This IPO?


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What’s Robinhood?

Robinhood is a monetary know-how (fintech) firm that gives inventory, choices, and cryptocurrency buying and selling together with banking companies. The user-friendly interface and zero-commission buying and selling have made Robinhood common with youthful demographics like Millennials and Gen-Z.

  • Robinhood was largely just lately valued at a reported $18.1 billion.
  • The corporate had been planning for an IPO in early 2021, however latest market volatility has delayed a public providing.

Bull Case

  • Consumer Development & Demographics: Robinhood has grown from an thought (commerce freely!) to greater than 13 million customers within the span of seven years, with estimated belongings beneath administration exceeding $20 billion. Most of those customers are youthful than prospects of conventional brokerages, giving Robinhood a possible lifetime relationship.
  • Future monetization: At present Robinhood makes cash through order stream and on the spare money left in accounts. Nevertheless, the connection Robinhood has with these younger customers affords it future income alternatives like administration charges from ETFs, mutual funds, and even robo-advising companies.

Bear Case

  • Operational Danger: Robinhood has confronted a sequence of operational failures in a closely regulated trade, together with a sequence of high-profile buying and selling outages and safety and information breaches.
  • Reputational danger: Robinhood’s once-sterling fame has been affected its actions within the GameStop brief squeeze saga, notably the corporate’s reliance on cost for order stream (PFOF) income.
  • Regulatory danger: Robinhood did itself no favors pausing buying and selling on sure shares and now finds itself within the crosshairs of Congress and the Securities and Alternate Fee (SEC).

Earlier than the GameStop fiasco, Robinhood inventory was among the many most enjoyable fintech shares slated to make their public debut in 2021. Ought to traders brief this IPO or do latest stumbles current a long-term shopping for alternative?

Robinhood Information & Evaluation

Why Are Traders Wanting Robinhood to IPO in 2021?

Life comes at you quick…

It would look like eons in the past, however Robinhood was thought-about one of many hottest fintech IPOs as early as January. Its user-friendly interface had turn into the favourite buying and selling platform for younger merchants with inventory buying and selling chatrooms like Reddit’s ‘Wall Road Bets’ stuffed with Robinhood screenshots trumpeting positive aspects or loss porn.

This was earlier than the corporate’s position within the GameStop saga. Robinhood has been notably faulted each side in GameStop’s large rise and fall: Wall Road looks like the corporate’s gamification and zero-cost buying and selling allowed many chatroom merchants to behave in a coordinated method to pump up GameStop inventory.

Robinhood customers are offended it banned shopping for of GameStop inventory (and lots of others) throughout a crucial juncture, killing momentum and giving hedge funds a vital benefit over the person investor.

It’s been the monetary story of the yr, however misplaced within the media feeding frenzy is the truth that Robinhood gained customers in the course of all of its points. In response to JMP Securities, the service had greater than 600,000 folks obtain the app on someday in the course of the disaster!

In truth, enterprise capital traders had been so certain of Robinhood’s prospects they had been keen to chop a $3.Four billion test to assist preserve the corporate afloat and to satisfy capital necessities.

Let’s analyze the bull and bear circumstances for the Robinhood IPO and weigh out the professionals and cons.

or, skip straight to the part on when you should buy Robinhood Inventory

Bull Case: Why Would You Need to Purchase Robinhood Inventory?

Investing is within the midst of a demographic sea change and Robinhood is main the way in which. For years investing was largely a pursuit for financially established – usually, older — People with the flexibility to purchase into professional-managed funds whereas youthful and less-affluent People – generally known as retail traders — had been left with few funding decisions.

Robinhood noticed a necessity within the market and stuffed it with its easy mission to democratize finance for all. It’s succeeding! In response to Citadel Securities (we’ll talk about Citadel in additional element later), retail traders accounted for as a lot as 25% of the inventory market’s exercise throughout coronavirus-related buying and selling, up from 15% in 2019 and considerably increased than the 10% Bloomberg Intelligence stories in 2010.

Robinhood has grown from an thought to greater than 13 million customers within the span of seven years, with estimated belongings beneath administration of $20 billion.

Nevertheless, it’s Robinhood’s goal demographics which might be the explanations that traders can’t wait to purchase Robinhood inventory. The corporate hasn’t launched demographics just lately, however in line with earlier disclosures, roughly 80% — 4 in 5 – customers are beneath the age of 35!

Robinhood has a monetary relationship with a extremely valued goal demographic that will probably be investing for many years to return.

This supplies Robinhood optionality for future income drivers. Now asset courses like shares and crypto are top-of-mind for these traders, however possible these customers will start to diversify with merchandise like mutual funds, bonds, and CDs as their web earnings will increase they usually turn into extra danger averse.

The lifetime worth of Robinhood’s consumer base is enviable when in comparison with different monetary establishments whose customers are older with many spending down and/or transferring belongings to their heirs…lots of whom are Robinhood customers.

Bear Case: What Are the Dangers of Shopping for Robinhood Inventory?

After all, the lifetime worth argument of Robinhood’s consumer base is based on one key level: Robinhood retains its consumer base. Resulting from varied fumbles from Robinhood, that premise is in no way assured. A latest Fortune survey discovered almost 56% of all Robinhood customers are actually contemplating leaving the platform.

For a fast checklist of Robinhood missteps:

  • The corporate was topic to a $1.25 million positive from FINRA and a class-action lawsuit associated to its apply of taking cost for order stream with out regard for execution costs for merchants.
  • The corporate confronted scrutiny for a system glitch that allowed choice merchants to take $1 million positions with as little as a $4,000 deposit.
  • The corporate admitted almost 2,000 accounts had been compromised resulting from a safety breach attributable to poor information safety strategies.
  • Robinhood CEO Vlad Tenev was grilled in a congressional listening to for his position within the “meme inventory” (assume GameStop, AMC, and many others.) buying and selling frenzy.

Finance is a closely regulated trade and the actual fact these points all occurred with out the final two years suggests the corporate may need operational and execution issues.

Nevertheless, the largest danger to Robinhood at this level is reputational. The core proposition to democratize finance for all has been referred to as into query customers who had been angered to study that the corporate sells its order stream to Wall Road hedge funds.

These considerations had been amplified when it was revealed Robinhood’s foremost buyer for these orders is Citadel Securities, which had a monetary curiosity within the hedge fund shorting GameStop.

Robinhood’s rash choice to forestall customers from shopping for shares of GameStop not directly benefited Wall Road hedge funds on the expense of the retail traders and led to allegations, maybe unfair, it was in cahoots with Citadel. Through the high-profile congressional listening to, it was clear Robinhood was thought-about the villain.

In extremely regulated industries like finance, your fame is forex with each customers and regulators alike and Robinhood should execute higher if it expects to proceed to win market share and keep away from stifling regulation.

When Can I Purchase Robinhood Inventory?

Through the congressional listening to, Robinhood was requested why a consumer couldn’t purchase shares within the firm.

The reply was the SEC limits funding in personal firms to solely accredited traders: traders want to satisfy a wealth take a look at of incomes at the least $200,000 a yr ($300,000 for married {couples}) or traders having a web price of over 1,000,000 {dollars} to personal Robinhood inventory till it goes public through an IPO or a reverse merger with a SPAC (particular function acquisition firm).

This was anticipated to occur quickly, at the least earlier than latest occasions. Final yr Robinhood employed funding banking big Goldman Sachs to weigh its choices to go public and it was reported the corporate was planning to debut as quickly as the primary quarter in 2021.

Earlier than then, it’s unlikely retail traders will be capable of personal Robinhood inventory. Thus far, personal traders proceed to supply ample ranges of funding together with a rapidly organized $3.Four billion increase to deal with capital limits because of the GameStop frenzy.

The subsequent blockbuster IPO?

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Robinhood Inventory: Who Owns It Now?

As a personal firm, non-accredited traders (outdoors of staff) can’t immediately purchase Robinhood inventory. Though Robinhood pushes for democratization, the corporate is beneath no obligation to reveal its traders or funding rounds.

However there may be some publicly obtainable data. Robinhood was based Baiju Bhatt and Tenev; the latter stays the corporate’s CEO. In response to Bloomberg, the homeowners had been price $1 billion apiece as of the Could 2018 funding spherical that valued the corporate at almost $6 billion.

Robinhood inventory has an enviable checklist of enterprise capital backers, together with Andreessen Horowitz, Sequoia, and Ribbit Capital, all of which reinvested within the newest emergency spherical of funding in February 2021.

Lastly, Robinhood has a number of high-profile homeowners, most notably rappers Snoop Dogg and Nasir “Nas” Jones. With an enviable checklist of backers like this, it’s comprehensible that many retail traders are desperate to purchase inventory as soon as the IPO happens.

Robinhood Inventory Worth: How A lot is it Now?

Robinhood has gone via eight rounds of funding, together with the latest follow-on G-1 spherical wanted to assist the corporate meet capital necessities. We all know the valuation will change every time the corporate undergoes a brand new funding spherical, and when the corporate does go public the inventory worth will probably be increased than the present worth.

Should you have a look at the chart beneath that features cumulative cash raised spherical and the valuation per spherical, and you may see the numerous market capitalization development. Robinhood had taken almost $5.6 billion of outdoor funding and was valued at almost $18.1 billion as of its final funding spherical.

Robinhood Valuation

Information from SharesPost/Creator Chart

Robinhood’s share worth was reportedly $18.60 as of the final spherical of funding.

What’s Robinhood’s Inventory Image?

Robinhood doesn’t have a inventory image but as a result of it’s not a publicly-traded firm. Solely publicly traded firms have ticker symbols on inventory exchanges, just like the New York Inventory Alternate (NYSE) or the NASDAQ alternate.

It’s not identified proper now which alternate Robinhood could checklist on. Historically, monetary establishments — like Goldman Sachs and JP Morgan — have listed on the NYSE, whereas the newer breed of fintech shares select to emphasise their tech roots and checklist on the NASDAQ. PayPal, Affirm Holdings, and Fiserv are all listed on the tech-heavy alternate.

The inventory image is for branding functions and to make sure traders keep in mind and may discover your organization. Assuming a NASDAQ itemizing, Robinhood has a selection of symbols like RBNH and RHOD to select from as soon as it goes public. The inventory image RHM (Robinhood Markets) would appear like an excellent match for a NYSE itemizing.

Robinhood Inventory: Ought to You Purchase the IPO?

It’s not possible to reply this query with out extra data. One factor that’s noteworthy is Robinhood doesn’t seem like an costly inventory for a fintech firm. Whereas we don’t have their audited monetary statements, we do have supporting public information we will use to type an preliminary thesis.

In 2020, it has been reported that Robinhood made roughly $600 million for funds for order stream (PFOF). Whereas it will range as a % of whole income over time, it has been reported that income from order stream represents wherever from 40% to 50% of its whole income.

Utilizing 45% on the midpoint, Robinhood trades at a price-to-sales ratio of 13.6 instances as of the final spherical of funding on the $18.1 billion valuation.

Robinhood Valuation Desk
PFOF Pctg. of Income 40% 45% 50%
Complete Income $1.5 billion $1.33 billion $1.2 billion
P/S Ratio (ttm) 12.1 instances 13.6 instances 15.1 instances

Whereas historically 13.6 instances income has been thought-about an costly valuation, for high-flying fintech shares this isn’t alarming. As a short comparability, fintech cost shares like PayPal Holdings and Affirm Holdings commerce for 17 instances and 69 instances trailing gross sales, respectively.

Admittedly, this is just one metric and traders want a fuller image. Right here’s what we do know: First, Robinhood’s main methodology of monetization is now beneath assault from customers and regulators and more and more rivals have copied its free buying and selling mannequin.

Now not does Robinhood have a singular providing and now its free commerce worth proposition has been downgraded from a key set-apart to easily a first-mover benefit.

Second, the corporate’s operational points seem like growing in scope which will increase the likelihood customers will abandon the location. There’s nothing extremely proprietary about offering buying and selling entry to the inventory market and, thus, consumer lock-in results are low. Even its slick consumer interface and gamification options can quickly be copied different brokerages that at present have extra monetary merchandise and schooling.

A wager on Robinhood’s IPO is a wager that CEO Vlad Tenev can shortly enhance the corporate’s operational points, which is in no way assured. Robinhood inventory seems to be one to place in your watch checklist till the CEO exhibits progress on enhancing its operational execution.

Regularly Requested Questions

Is Robinhood Inventory Public?

As of February 2021, Robinhood inventory is NOT public. Nevertheless, the corporate has been in negotiations with Goldman Sachs and is aiming for an IPO in 2021.

What’s the worth of Robinhood Inventory?

Robinhood is at present personal, nevertheless, as of the final spherical of funding, it was reported Robinhood inventory traded at $18.60 per share.

How do I purchase pre-IPO inventory of Robinhood?

At this level, non-accredited traders are unable to purchase inventory in Robinhood.

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