Valuation for Robinhood, Maker of App That Offers Free Stock Trades, Tops $5 Billion

Tech
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Another Successful Palo Alto Company !!!

Source WSJ => https://www.wsj.com/articles/robinhoods-valuation-soars-above-5-billion-1521141033

By Rolfe Winkler and Douglas MacMillan
Updated March 15, 2018 3:22 p.m. ET

Robinhood Financial LLC is set to be valued at about $5.6 billion in a new funding round, according to people familiar with the matter, a fourfold increase in just one year that reflects the stock-trading app’s soaring popularity among millennials.

The Silicon Valley startup is in the final stages of securing around $350 million from a group of investors led by Russian firm DST Global, according to the people familiar with the fundraising.

DST led Robinhood’s last funding round a year ago, which valued the company at $1.3 billion.

A Robinhood spokeswoman declined to comment.

The exploding valuation puts Robinhood among the top 15 highest-valued private technology companies in the U.S., representing an ambitious bet by investors that the firm can capture a sizable piece of the financial-trading market.

Robinhood’s three-year-old app has amassed more than four million users—roughly doubling from the prior year—by offering free stock trades that undercut even discount brokers that charge small fees.

The question is whether Robinhood can convince enough of its users to pay for premium services, such as “Gold” subscriptions that start at $6 a month for the ability to trade after hours and borrow capital. Robinhood also makes money on interest held in client cash accounts as well as by selling client trades to market makers.

As of last year, the median age of Robinhood’s users was around 30, meaning they are less likely to have ample cash in spare accounts to spend compared with older clients at big brokerages. The company is banking that the younger investors’ assets will grow over time, and that it will be able to sell them additional services. Robinhood has sought to keep costs low by shunning marketing and reducing overhead.

Investors also see opportunity in Robinhood’s recent introduction of trading in cryptocurrencies like bitcoin, according to a person familiar with the investment. Those trades are also commission-free.

At about $5.6 billion, Robinhood is already valued at a third of E*Trade Financial Corp. , which has a market capitalization of $15 billion. For investors in this latest round to earn a solid return on their investment they will be betting that Robinhood can approach that valuation.

Robinhood was founded in 2012 by two 20-something Stanford University math graduates, Vladimir Tenev and Baiju Bhatt. Now in their 30s, the founders have said they were inspired by the Occupy Wall Street movement in 2011 to make financial services accessible to everyone regardless of income.

Write to Rolfe Winkler at rolfe.winkler@wsj.com and Douglas MacMillan at douglas.macmillan@wsj.com

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$1.3B to $5.6B valuation in a year! This is the issue with companies waiting so long to go public. Retail investors miss out on the big growth.

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I can’t see how Robinhood is worth 5B.

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I cant see this valuation either. They might still get bought out by someone for 1 or 2B for their customer base.

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I don’t get the valuation either. I’d love to see their revenue and profit/loss. Etrade is worth $15B and they make $1B/yr in profit.

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I don’t get the appeal of free trades. At IB I pay $1 for a trade. That’s practically free. With IB I can trade all the major markets in the world, I can trade options, forex and futures, and margin interests rate is super low.

Robinhood attracts the amateurs who are cost conscious. Not the customer base to build a good business on IMO.

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IBKR has a 29B market cap. Robinhood is only 1/6 of IB, might be reasonable

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Robinhood forced all brokers to reduce the commissions. It is not the valuation, but popularity, user base, disrupting technology and conceptual change.

As they get more funds, they grow big, improve the services offered by others with low or no cost.

They have more than 4M users and have potential to kill or make other brokers to struggle soon.
(Robinhood’s three-year-old app has amassed more than four million users)

Robinhood may grow like Amazon or FB or NFLX in due course.

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Checks robinhood. opens up interactivebrokers. superior service.

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What disrupting tech does Robinhood have?

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Bitcoin, obviously.

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It just dawns on me I can do my own carry trade on IB.

Interests rate on Yen:

Yen Rate
0 - 11,000,000 1.5% (BM + 1.5%)
11,000,000.01 - 110,000,000 1% (BM + 1%)
110,000,000.01 - 20,000,000,000 0.5% (BM + 0.5%)

Interests rate on USD:

USD Rate
0 - 100,000 2.92% (BM + 1.5%)
100,000.01 - 1,000,000 2.42% (BM + 1%)
1,000,000.01 - 3,000,000 1.92% (BM + 0.5%)
3,000,000.01 - 200,000,000 1.72% (BM + 0.3%)

So borrow in yen and buy stocks in US/HK. $1M USD in yen is only 0.5%!

Heck, if your account is big enough, take out a yen margin loan and buy a house in SV.

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Yup - rates are pretty low for margin.

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I had used TD/Amertrade, interactivebrokers, etrade, schwab, vanguard, fidelity, Merrilledge, vanguard and Robinhood.

My best picks are Fidelity, Merrilledge and then Robinhood.

First, they get rid of commission and get rid of big computer to carry. You can trade in railway station, airport, bus or any place you can trade without having a laptop. IIRC, they are the first one started and now all brokers are following them. Robinhood becomes the leader.

Easy of use buy/sell/transfer/login/logout interface. They are the first one to introduce 100% free trade, that attracted millions to join.

Even with $100 people can start buying. Once they get the profit, they continue to pour more money, people are getting addicted to Robinhood just like Facebook or whats up account.

There are negatives such research/reports and analysis part, but they will grow soon and provide it.

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When did you use IB? Did you use mobile app? WebTrader? When was this?

BTW, give IB app a try. Have been using it for some time now. Very easy, and detailed.

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Not now, I think around 2013/2014 time frame.

Now, my big account is with fidelity ( 100% free trades ) and small account is with Robinhood.

I do not use margin, neither options and trades are also limited.

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I am more interested in this story than their new valuation: https://www.bizjournals.com/sanjose/news/2018/03/15/josh-elman-greylock-robinhood-product-chief.html

Why would this guys come back from VC to Product? Something at Robinhood convinced him of huge opportunity?

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I am not sure how important free trades are, they probably are but not sure how big. interactive brokers is very cheap, app is very good, margin rates are good, and i get to trade options.
recently transfered from vanguard some of my portfolio, it was very smooth. I ordered the debit card to take advantage of some margin stuff, but otherwise, i think i am prtty pleased with their service.

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I trade exclusively on the IB app on my iPhone. Never did the desktop or web app. Their desktop app is actually much more difficult to use. If I were into options strategy like @hanera I’d have to use their desktop app.

I buy/sell stocks/options/forex on IB iPhone app. Can Robinhood beat that? Does Robinhood even have margin? What’s their rate? Do they have options? Forex?

My IB stock trade commission is $1. Why hackle with $1?

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My last year Robinhood trades were 1167 and the 1099 ran to 92 pages ! IIRC, I made around 32% profit.

BTW: Robinhood is fun account to buy single share.

Margin account is small (I do not use) amount, but $6/month or $12/month - i do not know

Yes, they introduced options and cryptocurrency (partial also fine). I am not using them.

Forex, I really do not know. check robinhood.com, you will get the details.