Outlaw And Order

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What's going on?

Robinhood doesn’t do things by the book: the trading app revealed both surging revenues and losses late last week ahead of its much-anticipated initial public offering (IPO).

What does this mean?

New retail investors flocked to Robinhood last year, pushing its first-quarter revenue 300% higher and its monthly active users to 18 million – twice as many as the same time the year before. That was mostly down to an explosion in cryptocurrency trading, which made up 17% of Robinhood’s first-quarter revenue.

But things weren’t all hunky dory. A lot of the crypto revenue was from less-than-reliable dogecoin trading – the joke cryptocurrency that’s now down by more than 65% from May highs (tweet this). Likewise, the company carried out some emergency fundraising amid the “meme stock frenzy”, which led to an extraordinary $1.4 billion loss in the first quarter.

Why should I care?

For markets: New versus old.
Robinhood’s revenue has surged almost fourfold to $1.3 billion in the last four quarters – a growth trajectory that could see its revenue hit $5 billion over the next four. With its IPO rumored to value the firm as much as $40 billion, that’d imply a valuation multiple of 8x forecasted sales. That’s not outlandish, especially considering it’s not far off that of brokerage Charles Schwab’s. But there is one big difference between the two: the bulk of Robinhood’s revenue comes from selling its customer’s orders to so-called market makers in a practice known as “payment for order flow” – one that’s increasingly at risk of regulatory clampdown.

The bigger picture: South Korea steps up.
This listing would give America’s record-setting IPO market another shot in the arm. But South Korea is giving the country a run for its money: Kakao Pay – the country’s biggest online payment provider – filed for a listing that could raise the fintech company as much as $1.4 billion. And that comes hot on the heels of blockbuster IPO filings from fellow Korean fintech Kakao Bank, as well as video game maker Krafton.

Originally posted as part of the Finimize daily email.

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