Category: HOOD

HOOD – Robinhood's crypto division faces US$15mln fine from New York regulator

Robinhood Markets Inc has said its cryptocurrency division could face fines of at least US$15mln from the New York State Department of Financial Services (NYDFS) as a result of what it said were concerns surrounding money laundering and cybersecurity.

In its initial public offering (IPO) prospectus released last week, the stock trading platform said the estimated US$15mln penalty was “the bottom of the range for our probable loss in this matter”, adding that it could confirm whether current discussions with NYDFS would be the end of the issue.

READ: Robinhood prospectus reveals surge in memestock trading and law suits

The prospect of another multi-million dollar fine will add pressure to Robinhood’s crypto arm following reports last month that the SEC has been probing the division as part of a wider review of the company ahead of its planned listing.

The scrutiny means the firm’s float, which was originally planned for the summer, could be pushed back into the Autumn.

Another penalty will also add to the record US$70mln slapped on the firm by US financial regulator FINRA last week for lax vetting and outages.

When, or if, it makes it market debt, the company is expected to achieve a market cap of between US$30-US$40bn, with 20-35% of shares issued in the IPO to be allocated to Robinhood customers.

HOOD – Robinhood IPO: What You Need to Know

Robinhood IPO Details

Robinhood Markets Inc., is an online brokerage company with a stock trading and investing app aimed at younger retail investors. The company, an early adopter of zero-commission trades, filed for an initial public offering (IPO), submitting an S-1 registration form to the Securities and Exchange Commission (SEC) on July 1, 2021. Robinhood previously filed a confidential IPO on March 23, 2021.

A confidential IPO allows a company to submit an initial draft of its S-1 to the SEC, which only needs to be made public 15 days before any promotional roadshow or, if there’s no roadshow, 15 days before the IPO. The advantage of filing confidentially is that the company has more control over its IPO date and can make changes to its IPO filing without needing to manage public relations.

Robinhood did not disclose the expected date, price range, share count, and total valuation of its IPO in its confidential IPO filing nor in its recent S-1 submission. The company’s class A common stock will be listed on the Nasdaq Stock Market under the ticker symbol “HOOD”.

Robinhood’s eponymous app lets users trade over 5,000 stocks and seven cryptocurrencies on its platform. In addition, users can trade in American Depository Receipts (ADRs) for 650 globally-listed companies and options contracts for stocks listed on U.S. exchanges and exchange-traded funds (ETFs).

Key Takeaways

  • Robinhood is a California-based fintech company with a stock trading and investing app targeted at younger retail investors.
  • Its class A common stock will be listed on the Nasdaq under the symbol “HOOD”.
  • Robinhood has raised a total of $5.6 billion from private investors and was reportedly valued at $40 billion at its most recent funding round in February 2021.
  • The company generated $522.2 million in revenue in Q1 of FY 2021, and reported net losses of $1.4 billion.
  • Robinhood was charged by the SEC in December 2020 for delivering sub-par trade execution to its customers.
  • Robinhood has been in the news extensively in 2021 due to its popularity with traders involved in the GameStop short squeeze.

Robinhood Founding and History

Robinhood was founded in 2013 by Stanford graduates Vlad Tenev and Baiju Bhatt. The duo had prior experience on Wall Street before launching Robinhood, having previously founded Celeris, a trading technology firm, and Chronos Research, which sold fintech software to investment banks.

The Robinhood app was launched in April 2013 as an app for tracking stocks, in an attempt to create an equivalent to Yahoo Finance for mobile devices. Yahoo and Google Finance went mobile, pushing Robinhood out of that space, so Robinhood raised $16 million from well-known venture capitalists, including Andreessen Horowitz and Ribbit Capital, and pivoted to become a brokerage.

Robinhood as we now know it was formally launched in Apple’s App Store in December 2014. Since then, it has grown in popularity and its monthly active user (MAU) base has expanded to about 17.7 million, as of March 31, 2021.

Robinhood has been in the news extensively in 2021 due to its popularity with the retail investors who carried out the GameStop short squeeze. Increased trading activity on its platform, however, led to rising demand for margin and the app halted trading activity for GameStop’s stock on its platform. The company was also forced to raise additional capital from investors to meet its capital requirements.

That incident brought Robinhood under criticism and regulatory scrutiny and its chief executive officer and co-founder Vlad Tenev had to testify before Congress concerning Robinhood’s role in the controversy.

Robinhood Company Financials

Robinhood is a commission-free brokerage, meaning users do not have to pay fees to trade stocks on its platform. Trading fees have been the traditional way brokerages made money; in the absence of these fees, Robinhood has had to find other ways to generate revenue.

Robinhood’s biggest source of revenue is from a practice called payment for order flow (PFOF). Payment for order flow refers to money that brokerages receive for directing its customers’ trades to particular market makers. Market makers are firms which match buyers and sellers of stocks or other securities. They make money by pocketing the difference between how much the buyer of a stock pays for the stock and how much the seller sells it for. In order to ensure that there are always buyers and sellers to match up, they pay brokers like Robinhood to send orders to them.

Brokerages are obligated to find the best execution of trades for their customers, primarily meaning that they try to get the best price for trades done in the most timely manner. PFOF presents the possibility for a conflict of interest, because a brokerage may be paid more to send orders to a market maker who will give worse prices to their customers. Robinhood says that it still gets best execution for its customers, writing on its website that payments from market makers “aren’t considered when your brokerage orders are routed.”

However, in December 2020, the SEC found that “Robinhood falsely claimed in a website FAQ between October 2018 and June 2019 that its execution quality matched or beat that of its competitors. The [SEC’s] order finds that Robinhood provided inferior trade prices”. The SEC said that this practice cost its customers $34.1 million, even when accounting for the savings customers gained by not having to pay commissions. While Robinhood did not admit or deny the SEC’s filings, it did agree to pay $65 million to settle the charges.

In the recently submitted S-1 form, Robinhood provided financial results for Q1 of its 2021 fiscal year, which ended March 31, 2021, and results for FY 2020, which ended Dec. 31, 2020. The company generated $522.2 million in revenue in Q1 FY 2021, more than quadrupling on a year-over-year (YOY) basis. However, Robinhood’s net losses ballooned, rising to $1.4 billion in Q1 2021 from $52.5 million in Q1 FY 2020. For FY 2020, annual revenue grew 245.5% to $958.8 million, helping the company generate net income of $7.4 million compared to a net loss of $106.6 million in the previous year.

Nearly 81% of Robinhood’s revenues in Q1 FY 2021 were transaction-based revenues, generated from PFOF, including what the company calls “Transaction Rebates” on cryptocurrency trades. About 12% of total revenue was from interest, either charged on margin accounts or from putting customers’ uninvested cash in bank accounts and keeping the interest. Finally close to 8% from other sources, such as subscriptions for Robinhood’s premium Gold membership, which allows users to trade on margin.

Robinhood’s net cumulative funded accounts, a key metric that gauges the number of accounts into which users made an initial deposit or money transfer during a specified period, rose 150.0% YOY to 18.0 million in Q1 FY 2021. The company’s total book value, the difference between its assets and liabilities, as of the end of the first quarter, was $6.2 billion. Total cash and cash equivalents on Robinhood’s balance sheet at the end of the quarter was $4.8 billion.

Robinhood Key Financials
  Q1 FY 2021 Q1 FY 2020
Revenue ($M) 522.2 127.6
Net Loss ($M) 1,444.8 52.5
Net Cumulative Funded Accounts (M) 18.0 7.2

Source: Robinhood S-1

How Much Is Robinhood Worth? 

According to online public database Crunchbase, Robinhood has raised a total $5.6 billion from investors over 24 funding rounds. The most recent round on February 1, 2021 raised $2.4 billion. Robinhood was valued at $40 billion at its February funding round, substantially higher than the $11.7 billion valuation from its September 2020 round. Among its major backers are Kleiner Perkins, Andreessen Horowitz, and Google Ventures.

HOOD – Robinhood says experiencing crypto trading and display issues

Robinhood logo is seen on a smartphone in front of a displayed stock graph in this illustration taken, July 2, 2021. REUTERS/Dado Ruvic/Illustration

(Reuters) -Robinhood Markets Inc, the app-based brokerage firm, said on Friday it had resolved an outage affecting crypto trading on its platform after briefly experiencing a service interruption.

“We take any interruption in service seriously and we’re sorry to anyone impacted by tonight’s brief disruption. We’ve resolved the issue and are here to help if you need us,” the company said in a tweet here.

Robinhood experienced crypto trading and display issues on its platform for about an hour late Friday.

At one point, more than 1,000 users were complaining about issues with Robinhood in the North America region, according to outage monitoring website Downdetector.

Robinhood, which has been at the center of Wall Street’s recent retail trading frenzy, on Thursday filed for its initial public offering.

Reporting by Aakriti Bhalla in Bengaluru; Editing by Daniel Wallis and Leslie Adler