Robinhood, the online brokerage for Gen Z and Millennials, raised an additional $200 million to reach an $11.2 billion valuation following its Series G funding round. Just one month ago, it raised $280 million at an $8.3 billion valuation.
Robinhood's valuation increased by 35% in just one month. It's befitting of this moment when interest and trading in financial markets are exploding. It's likely that Robinhood IPOs within the next 12 months.
Exploding Popularity
Robinhood is contributing to this interest and also benefits from it. Its valuation makes it equivalent to E-Trade
During the last tech bubble, E-Trade was the new entrant that was quickly growing and taking market share as retail traders were flooding onto the platform.
By some measures, the company already exceeds these established players. In 2020, it's added nearly 5 million more users. In June, Robinhood posted 4.31 million daily active revenue trades (DARTs). In contrast, TD Ameritrade had 3.84 million, Schwab had 1.8 million, Interactive Brokers had 1.86 million, and E-Trade had 1.1 million DARTs.
In addition to taking over market share, Robinhood has already disrupted the brokerage industry by offering commission-free trading which the legacy companies were forced to match. This has led to a decline in revenues which along with rock-bottom interest rates has translated into their stocks underperforming.
How Robinhood Makes Money
Robinhood makes money by selling its customers' order flow to its clients. There has been some scrutiny about this as these companies may be betting against Robinhood users. The company is sensitive about this criticism and recently shut down its API which publicly showed what positions its users were buying and selling. It's also pushed back by saying that many brokerages sell order flow to clients.
It's also said that most of its customers are long-term investors and that active, day-traders make up a small segment. The company has also faced criticism that its trading app makes complicated options strategies available to novice traders.
Another factor that could drive growth for Robinhood is crypto. Some of the frenzies in the stock market have been leaking into crypto. Bitcoin is up more than 100% over the last four months, and other cryptos are up even more. Bitcoin is about 40% below its all-time high set in December 2017 but a move past these highs would probably unleash more trading activity in crypto which would benefit Robinhood.
