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.