Robinhood, a US Internet brokerage company known as the “retail investor base”, has submitted an IPO application on July 1. If approved, it will be listed on the Nasdaq under the stock code of “HOOD”.
In the documents submitted to the US Securities and Exchange Commission (SEC), the brokerage platform disclosed its business growth. In the first quarter of 2021, the company’s total revenue was US$522 million, an increase of 309% from US$128 million in the same period in 2020. Currently, Robinhood has approximately 17.7 million monthly active users.
Strikingly, Robinhood’s revenue growth is partly attributable to the performance of its crypto asset trading business. In the first quarter of this year, 17% of the company’s total revenue came from the “coin” business. The total transaction volume of the 7 crypto assets listed on the shelves reached 88 billion U.S. dollars, an increase of 23 times compared with the same period last year, of which Dogecoin transactions accounted for 34%.
Robinhood users’ preference for crypto asset investment is not difficult to understand. Since its establishment in 2013, the platform has attracted a large number of retail investors to join by means of zero commission, splittable stock trading, and free stocks to registered users. Statistics show that about half of Robinhood users are first-time investors, and the median age is only 31 years old. Relatively young retail investors also happen to be the main force in the crypto asset market.
Robinhood’s “coin” business revenue has gradually increased, bringing beautiful financial data to its listing, but this business may also become a “stumbling block.” Previously, the SEC’s review of Robinhood’s crypto asset trading business had delayed its IPO plan. Moreover, the current performance of the crypto asset market is sluggish, and Robinhood’s revenue will inevitably be affected.
The high volatility and high risk of the crypto asset market, coupled with the supervision of this market, have become a factor of instability before Robinhood goes public. Some analysts believe that if Robinhood’s crypto asset trading share continues to expand in the future, it will directly affect its future stock price performance.
Crypto-asset trading adds luster to Robinhood’s revenue
On July 1, Robinhood, a US Internet brokerage company, filed a Form S-1 application with the US Securities and Exchange Commission (SEC) for an IPO, and plans to list on the Nasdaq under the stock code “HOOD”. The brokerage company plans to raise up to 100 million U.S. dollars in the IPO, and the listing target value is 40 billion U.S. dollars. If nothing happens, Robinhood will land in the capital market in the next 1-2 months.
As a well-known “retail investor base” in the United States, Robinhood’s IPO plan has attracted much attention. During the COVID-19 pandemic, a large number of retail investors in the United States entered the stock market and provided growth boost for their business.
The application documents disclosed that the fund accounts managed by Robinhood have increased from 7.2 million last year to 18 million in March this year, an increase of 151%. The assets under customer custody increased from 19.2 billion U.S. dollars in March last year to approximately 80 billion U.S. dollars, a surge of 316.67% year-on-year. Currently, Robinhood has approximately 17.7 million monthly active users.
In 2020, Robinhood’s total revenue was US$959 million and net profit was US$7.45 million, making it profitable. In comparison, total revenue in 2019 was US$278 million and a loss of US$107 million. In the first quarter of 2021, the company’s total revenue was US$522 million, an increase of 309% from US$128 million in the same period in 2020.
The rapid growth of business volume is the guarantee that Robinhood can go public, which is inseparable from the promotion of its crypto asset trading business. In the documents it submitted, the crypto asset trading business occupies a large part of its revenue.
The S-1 form submitted by the company shows that in the first quarter of 2021, 17% of the company’s total revenue came from the crypto asset trading business, and the total transaction volume of the “coin” business reached 88 billion U.S. dollars, an increase of 23 times compared with the same period last year. , In which Dogecoin trading volume accounted for 34% of the total trading volume. For comparison, Dogecoin transactions accounted for only 4% in the fourth quarter of last year.
According to data, Robinhood introduced crypto asset trading for the first time in 2018. Up to now, it has provided 7 types of crypto asset trading services including Bitcoin, Ethereum, and Dogecoin. Benefiting from the previous rise in the crypto asset market, the stock of crypto assets on the platform soared from US$480.7 million to US$11.6 billion in the first quarter of this year.
Although Robinhood mainly provides stock trading, the proportion of its crypto asset trading business is showing an increasing trend. Earlier, Tesla founder Elon Musk mentioned Dogecoin on Twitter several times, which has increased investors’ enthusiasm for trading this crypto asset in Robinhood to a certain extent.
In addition, Robinhood has advocated free trading since its inception, and its main customer group is relatively young retail investors. This group of people’s preference for crypto-asset trading has also driven the growth of Robinhood’s “coin” business.
Mainly focusing on the financial “sinking market” with wins and losses
Since its establishment in 2013, Robinhood has been playing cards out of common sense. Unlike other stock brokers, it created a precedent for zero-commission trading to attract retail investors to trade stocks here. At present, Robinhood’s main profit model is to send orders to market makers to make money-taking a certain percentage of commission from the order amount.
In order to gain a foothold in the fierce brokerage competition, Robinhood has innovated the trading model, which allows users to split the purchase of stocks. Just as investors in crypto assets can buy 0.001 or less bitcoins, stock investors don’t need to spend two or three thousand dollars to buy a share of Google or Amazon on Robinhood. They can buy each share with a relatively small amount of capital. a small part of.
Another initiative of Robinhood to attract new users is that as long as users register with Robinhood, they can get a free share.
Crypto assetsRobinhood attracts new users by issuing free stocks
It can be seen from the registration page of Robinhood’s official website that when the user completes the registration and links the bank account, a “surprise stock” will appear in the account. Although 98% of “surprise stocks” are worth less than $10, lucky users may get higher-value stocks. Special note on this page: You have a 1/150 chance of acquiring shares of Johnson & Johnson (US$165.96), JPMorgan Chase (US$157.09) or Apple (US$137.16).
Robinhood has successfully attracted a large number of retail investors to register by means of commission-free, support for splitting trading stocks and giving away stocks. Statistics show that of Robinhood’s current 18 million users, about half are first-time investors, and the median age is only 31 years old. The median account size is only 240 US dollars, and the average account size in February was only 5,000 US dollars.
The influx of retail investors has given Robinhood the title of “retail home base”. In January of this year, it also acted as the main battlefield for retail investors to buy stocks such as GameStop in the US stocks “air-squeeze war”, and it was in the limelight for a while.
It is worth mentioning that, in order to repay the support of retail investors, in this IPO, Robinhood plans to allocate 20% to 35% of the A shares in its IPO to its users. Investors can use Robinhood to name it as IPO Participate in the subscription of new features of Access.
You know, in the past, retail investors had very few opportunities to buy the stocks of newly listed companies. In the U.S. stock market, if you want to participate in IPO transactions, the account funds generally need to reach more than $250,000. Robinhood has drastically lowered this threshold.
The business philosophy of “popularize the market” finally brought Robinhood to the eve of its IPO. However, the instability of retail investor sentiment has also taught Robinhood, which is taking the financial “sinking market”, a lesson.
In January of this year, Robinhood took restrictive measures during retail speculation of “meme stocks” to prevent platform users from buying shares such as GameStop and AMC Entertainment, and subsequently encountered a class action lawsuit by retail investors. Robinhood mentioned in the SEC filing that this incident has triggered negative public opinion and widespread dissatisfaction among customers. The company admitted that a large number of lawsuits are “expensive and time-consuming” and may damage its reputation and finances.
“Coin” business planted instability factors for listing
As it is about to go public, Robinhood’s troubles have also followed.
The day before it submitted its IPO application, the Financial Industry Regulatory Agency (FINRA) issued the largest fine in history to the company, totaling approximately $70 million. The penalty involved Robinhood’s system interruption and other failures in March 2020, lack of due diligence before approving customers for option trading, and misleading information on margin trading provided to customers. FINRA stated that these factors combined have harmed the interests of millions of users of the platform.
In addition to customer lawsuits and regulatory fines, its crypto asset trading business is also regarded as an unstable factor by the outside world.
In fact, Robinhood originally planned to conduct an IPO in June, but the plan was delayed because the SEC was reviewing its crypto asset trading business at that time. According to a report by the Financial Associated Press on June 25, the SEC has been asking Robinhood about the growing crypto asset business.
Robinhood also mentioned in its IPO documents that Dogecoin, inspired by Meme stock, accounted for 34% of its crypto asset trading revenue in the first quarter. The company said that if the crypto asset market deteriorates or the price of Dogecoin falls, including factors such as negative views of Dogecoin or increased availability of Dogecoin on other crypto asset trading platforms, its business may be harmed.
Although Robinhood has not yet released its business data for the second quarter, it is foreseeable that as the crypto asset market has fallen sharply since mid-May, the activity of this market has been much lower than before, especially the popularity of Dogecoin has declined significantly. , May affect Robinhood’s overall revenue level.
From May 8th to July 2nd, Dogecoin fell from a maximum of US$0.74 to US$0.24, a decrease of 67.5%. Although Elon Musk has been promoting Dogecoin on Twitter several times recently, his influence on this market is also weakening. Many investors replied on relevant Twitter that they lost all their savings due to investing in Dogecoin.
More analysts worry that if Robinhood’s crypto asset trading share continues to expand in the future, it will directly affect its future stock price performance.
For Robinhood, the crypto-asset trading business has provided a great boost to its volume growth and revenue, but the high volatility of this market and the uncertainty brought about by regulatory review have also become the Internet brokerage firm’s impossibility. Potential risks not faced. How to balance the proportion of “coin” businesses and the impact of these businesses on valuation or market value will be a challenge for Robinhood.