Robinhood’s IPO reception

Robinhood’s first day as a public company was likely not what investors were hoping for.

After pricing its initial public offering (IPO) at $38 per share, the stock would lag throughout Thursday’s session, finishing out the day below the IPO price at $34.82 per share.

At those price levels, Robinhood is valued at close to $30 billion, and trades on a relatively demanding sales multiple. The company trades under the ticker HOOD on the Nasdaq.

Democratising finance

Robinhood’s mission is both simple and memorable: with the company's stated aim to 'democratise finance' for all. That is the messaging found in many of the company’s media releases and was front and centre as part of the IPO prospectus.

Ultimately, commission free trades, a slick app, access to options trading, and a mission that resonates with clients – have seen users rush to the platform in recent years. Robinhood’s operational results have also surged in response.

That is well reflected in the company’s 2020 results – revealed as part of the IPO prospectus.

As with many online trading companies, 2020 was a boon for Robinhood, with the company seeing its revenue grow 245%, coming in at $959 million.

On the bottom-line, net income swung from a heady loss in 2019 to a gain of $7 million in 2020, while adjusted earnings (EBITDA) came in at $155 million.

Those trends were maintained as we entered the 2021 calendar year. For the three months ended March 31, the company saw its revenue growth accelerate even further: up 309% to $522 million. And on a per user basis, average revenue per user hit $137.0, well ahead of 2020 levels.

Adjusted EBITDA was $115 million, representing another milestone for the company. Even so, Robinhood reported a somewhat shocking net loss of $1.4 billion. To be fair, this was due to 'a $1.5 billion fair value adjustment to our convertible notes and warrant liability.'

Yet one point that traders and investors should be aware of is just how concentrated some of this growth is. Indeed, Robinhood made a specific point to highlight just how much of its recent net revenue were driven by cryptocurrency transactions – in the IPO prospectus.

Illustrating that point, for the March quarter, a significant 17% of total revenues were derived from cryptocurrency transactions. Startlingly however, some 34% of those crypto revenues were derived from just Dogecoin transactions. Painting a picture of an uncertain future, management noted that the:

‘Business may be adversely affected, and growth in our net revenue earned from cryptocurrency transactions may slow or decline, if the markets for Dogecoin deteriorate or if the price of Dogecoin declines, including as a result of factors such as negative perceptions of Dogecoin or the increased availability of Dogecoin on other cryptocurrency trading platforms.’

Robinhood share price outlook

With the stock listing just yesterday, 29 July, analyst coverage on the name is thin. The one analyst currently covering the stock – John Heagerty from Atlantic Equities – has a $65 price target on Robinhood, suggesting the expectation of significant upside from the stock’s last close.

Additional sell-side coverage on Robinhood will likely emerge in the coming days and weeks.

Watch this space.

What’s your view on Robinhood? Take a long or short position today.

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Shane Walton | Financial Writer, Australia
30 July 2021

_{* Awarded ‘best finance app’ and ‘best multi-platform provider’ at the ADVFN International Financial Awards 2020.}