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Once upon a time, Robinhood was the broker for renegade first-time investors who wanted to stick it to Wall Street. Three years on from the height of meme stock mania, the company wants to reclaim the disrupter crown for itself. That’s a far more interesting investment story, particularly if it figures out where its troublemaking can be best deployed.
Three consecutive quarters of net profitability have helped boost Robinhood’s shares by more than 50 per cent this year. It has been helped by market tailwinds too, notably from its crypto operations as trading in bitcoin has surged. In fact, its shares have tracked the crypto drama closely. Higher interest rates have also helped, with net interest revenues offsetting a slide in income from the rebates and payment for order flow that make up its trading core.
So far, so simple. But what does founder Vlad Tenev want Robinhood to be seen as? The place where the kids trade Nvidia while mom and pop sort their 401(k) retirement funds? A crypto hub with the air of an outlaw yet safe onshore US rules? Or some combination of the above in a superapp that combines more businesses such as payments and savings?
This year Tenev has made moves that fit all three. In June Robinhood bought crypto exchange Bitstamp — even as it faces an expected lawsuit over alleged violations of securities laws linked to crypto. By year-end, customers will have a web platform that should increase its appeal beyond smartphone-obsessed youngsters. In July it bought Pluto, an AI-based research platform. Back in March, meanwhile, it launched a credit card as part of its “gold” subscription service. Bitstamp also gives it an entrée with institutional investors, potentially opening up a different trading market entirely.
Tenev has said that the credit card was “just the beginning”. That sounds like a superapp in the making, and those stories can rapidly become complicated.
Robinhood’s shares trade at 27 times forecast earnings, on the back of its straightforward growth tale. That is a premium to broking rivals. Interactive Brokers — serving institutional traders as well as retail — and Charles Schwab, which has a bank, trade on multiples of 18 and 17 respectively. Crypto exchange Coinbase, in contrast, is on 37 times.
Next month in Miami the broker is hosting its first customer conference with promises of “awesome” new products. After three years of association with a brief and ill-fated market mania, long-term investors should be looking for a clearer sense of the next chapter in Robinhood’s tale.
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