One of the biggest names in crypto is bullish on the future of
Robinhood
HOOD 24.47%
Markets. That makes sense. But others might think twice before settling down in Sherwood forest.
The disclosure on Thursday that
Sam Bankman
-Fried, the 30-year-old billionaire who founded the cryptocurrency exchange FTX, has bought a 7.6% stake in Robinhood sent the online brokerage’s shares soaring, up nearly 25% so far on Friday. To be sure, the stock is still down some 40% this year, and is nearly 90% off its peak price.
Some traders might be thinking this is a prelude to a takeover,
Elon Musk
-style, or even a merger or alliance with FTX. However, all current signs point to this being a personal and passive investment for Mr. Bankman-Fried.
The nature of the filing doesn’t rule out an active role, but it said that Mr. Bankman-Fried currently has no intention to be active and views this as an “attractive investment.” Robinhood also has a special class of shares for its co-founders that give them voting control of the company, making an aggressive takeover a difficult proposition.
Crypto might be in a crisis moment to many observers, but to the industry’s leaders and believers it is a time, as
Warren Buffett
has put it, to be greedy when others are fearful.
There aren’t many people—besides Mr. Buffett, perhaps—who could earn a 20%-plus return in a day with their stamp of approval on a stock. But when it comes to crypto, the talismanic Mr. Bankman-Fried evidently has the market’s ear.
Robinhood now trades at a market value of around $9 billion, but has cash-and-equivalent resources of around $6 billion—that is not counting cash segregated for customers and its deposits at clearinghouses. So if you are bullish on crypto’s future, Robinhood might look quite attractively valued.
It has a license to offer crypto trading in New York—which FTX US currently doesn’t, though it has recently applied for a New York trust charter—and is a place where many people who don’t usually invest might go to start trading crypto for the first time. It has fully rolled out its crypto wallet. Robinhood also recently more than doubled the rebate rate it gets from sending crypto orders to trading venues.
Even so, crypto transaction revenue grew just 13% sequentially in the first quarter due to a sharp drop in activity levels. Still, this suggests that any rebound in crypto trading or prices could be quite lucrative for Robinhood.
For the crypto-skeptical investor, however, Robinhood’s road ahead still looks long. It needs to boost its average revenue per user—at $53 as of the first quarter—by roughly $30 to help get to positive adjusted earnings before interest, taxes, depreciation, and amortization by year-end, the company has said. The ability of nonactive trading, non-crypto products to drive that expansion is still a question mark, though things such as an expanded stock-lending program and a jump in customer cash levels have promise.
In these difficult times for crypto, it might be smart for believers to pick a leader to follow, especially if they have a long time horizon. But if you’re not expecting a rebound anytime soon, judging Robinhood on other dimensions remains challenging.
Write to Telis Demos at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
