Robinhood's listing is imminent, and the "coin" business is a blessing and a curse
Author: Kyle; Editor: Wen Dao
Author: Kyle; Editor: Wen Dao
Robinhood, an American Internet broker known as the "retail investor base camp", submitted an IPO application on July 1. If approved, it will land on Nasdaq under the stock code "HOOD".
In a filing with the U.S. Securities and Exchange Commission (SEC), the brokerage platform disclosed its business growth. In the first quarter of 2021, the company's total revenue was $522 million, a 309% increase from $128 million in the same period in 2020. Currently, Robinhood has about 17.7 million monthly active users.
Strikingly, some of Robinhood's revenue growth can be attributed to the performance of its encrypted 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 encrypted assets on the shelves reached 88 billion US dollars, an increase of 23 times compared with the same period last year, of which Dogecoin transaction volume accounted for 34%.
The preference of Robinhood users for investing in crypto assets is not difficult to understand. Since its establishment in 2013, the platform has attracted a large number of retail investors to join with zero commission, split stock trading and free stock gift to registered users. According to statistics, about half of Robinhood users are first-time investors, and the median age is only 31 years old. The relatively young retail investors also happen to be the main crowd in the crypto asset market.
The high volatility and high risk of the encrypted asset market, coupled with regulatory scrutiny of this market, have become unstable factors before Robinhood's listing. Some analysts believe that if the proportion of Robinhood’s encrypted asset transactions continues to expand in the future, it will directly affect its future stock price performance.
first level title
On July 1, Robinhood, an American Internet brokerage firm, submitted an S-1 form to the US Securities and Exchange Commission (SEC) for an IPO application, planning to list on NASDAQ under the stock code "HOOD". The brokerage is planning to raise up to $100 million in the IPO, targeting a valuation of $40 billion. If nothing else, Robinhood will land on the capital market in the next 1 to 2 months.
image description
Robinhood Issues Statement Regarding IPO Application
As a well-known "retail investor base camp" in the United States, Robinhood's IPO plan has attracted much attention. During the new crown epidemic, a large number of retail investors in the United States entered the stock market, providing a growth boost for its business.
According to the filing, the number of accounts managed by Robinhood has grown from 7.2 million last year to 18 million in March this year, an increase of 151%. Assets under client custody increased from US$19.2 billion in March last year to approximately US$80 billion, a year-on-year surge of 316.67%. Currently, Robinhood has about 17.7 million monthly active users.
In 2020, Robinhood's total revenue was US$959 million and its net profit was US$7.45 million, making it profitable. That compares with a loss of $107 million on total revenue of $278 million in 2019. In the first quarter of 2021, the company's total revenue was $522 million, a 309% increase from $128 million in the same period in 2020.
The rapid growth of business volume is the guarantee for Robinhood to be listed, which is inseparable from the promotion of its encrypted asset trading business. In the documents it submitted, the encrypted asset trading business accounted for 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 encrypted asset trading business, and the total transaction volume of the "coin" business reached 88 billion U.S. dollars, an increase of 23 times compared to the same period last year , of which Dogecoin transactions accounted for 34% of the total transaction volume. For comparison, in the fourth quarter of last year, Dogecoin’s trading volume accounted for only 4%.
According to the data, Robinhood introduced encrypted asset trading for the first time in 2018. Up to now, it has provided 7 encrypted asset trading services including Bitcoin, Ethereum, and Dogecoin. Benefiting from the previous rise in the encrypted asset market, the stock of encrypted assets on the platform soared from $480.7 million to $11.6 billion in the first quarter of this year.
In addition, Robinhood has advocated free trading since its inception, and its main customer base is relatively young retail investors. This group of people's preference for encrypted asset transactions has also driven the growth of Robinhood's "coin" business.
first level title
Focusing on the financial "sinking market" has won and lost
Since its founding in 2013, Robinhood has been playing cards against common sense. Unlike other stock brokers, it pioneered zero-commission trading to attract retail investors to trade stocks. At present, Robinhood's main profit model is to send orders to market makers to make money—taking a certain percentage of the order amount.
In another Robinhood move to attract new users, users can get a free share of stock whenever they sign up with Robinhood.
image description
Robinhood lures new users by handing out free stock
It can be seen from the registration page of Robinhood's official website that when a user completes registration and links a bank account, a "surprise stock" will appear in the account. While 98% of "surprise shares" are worth $10 or less, lucky users may be rewarded with shares of higher value. Special tip on this page: You have a 1 in 150 chance of getting shares in Johnson & Johnson ($165.96), JP Morgan ($157.09) or Apple ($137.16).
Robinhood has successfully attracted a large number of retail investors to register through commission-free, support for split trading stocks and gift stocks. According to statistics, about half of Robinhood's current 18 million users are first-time investors, and the median age is only 31 years old. Its median account size was just $240, and the average account size in February was just $5,000.
The influx of retail investors gave Robinhood the title of "retail investor base camp". In January of this year, it also acted as the main battlefield for retail investors to buy stocks such as GameStop in the "short squeeze war" in the US stock market, 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. Participate in subscriptions for new features in Access.
You must know that in the past, it was difficult for retail investors to have the opportunity to buy stocks of newly listed companies. In the US stock market, if you want to participate in IPO transactions, the account funds generally need to reach more than 250,000 US dollars. Robinhood has lowered that bar considerably.
In January of this year, Robinhood took restrictive measures when retail investors speculated on "meme stocks", preventing platform users from buying stocks such as GameStop and AMC Entertainment, and was subsequently sued by retail investors. Robinhood mentioned in the SEC filing that this incident has caused negative publicity and widespread customer dissatisfaction. The company acknowledged that the spate of litigation is "expensive and time-consuming" and could damage its reputation and finances.
first level title
"Coin" business creates unstable factors for listing
With the imminent listing, Robinhood's troubles followed.
A day before it filed for an IPO, the Financial Industry Regulatory Authority (FINRA) slapped the company with its largest ever fine, totaling about $70 million. The punishment involves Robinhood's failures such as system outages in March 2020, lack of due diligence before approving customers for options transactions, and misleading information about margin trading to customers. Together, these factors harmed the platform’s millions of users, FINRA said.
In addition to customer lawsuits and regulatory fines, its encrypted 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 due to the SEC's review of its encrypted asset trading business at the time, the plan was delayed. The SEC has been questioning Robinhood about its growing crypto asset business, according to a June 25 report from the Financial Associated Press.
Robinhood also mentioned in its IPO filing that Meme-inspired Dogecoin accounted for 34% of its encrypted asset trading revenue in the first quarter. The company stated that if the crypto asset market deteriorates or the price of Dogecoin falls, including factors such as negative perception of Dogecoin or the increased availability of Dogecoin on other crypto asset trading platforms, its business may be harmed.
Although Robinhood has not yet announced 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 greatly reduced, especially the popularity of Dogecoin. , may affect the overall revenue level of Robinhood.
From May 8 to July 2, Dogecoin fell from a maximum of $0.74 to $0.24, a drop of 67.5%. Although Elon Musk has been promoting Dogecoin on Twitter many times recently, his influence on this market is also weakening. Many investors replied on related Twitter that they lost all their savings due to investing in Dogecoin.
Analysts are even more concerned that if the proportion of Robinhood’s encrypted asset transactions continues to expand in the future, it will directly affect its future stock price performance.
