Robinhood Valuation

Dear Reader,

Robinhood,  the US, Menlo Park, California Based financial services, brokerage, company filed confidentially for IPO. 

In September 2020 Robinhood raised a funding round which valued the brokerage company at 12 billion USD.

So how much is Robinhood's intrinsic value? 

I estimate Robinhood's current intrinsic worth is around 14 billion USD. 

Robinhood, according to various sources, made 682 million USD in revenue for the full year 2020, a more than 500 % growth on the 2019 revenue. Apparently, during the pandemic, many young people with more saved money and time available turned to investing in cryptocurrencies and stocks. I say cryptocurrencies, because even according to its co-founder Vladimir Tenev, Robinhood is a "crypto company" which should suggest that Robinhood makes the majority of its revenue from people trading cryptocurrencies.

Robinhood revenue

Year	Revenue
2015	$2.9 million
2016	$9.3 million
2017	$21 million
2018	$69 million
2019	$111 million
2020	$682 million

In 2020 Robinhood had around 13 million users, mainly young people with much lower brokerage account balances than the investors in other retail trading market leaders like Charles Schwab and E-Trade.

Robinhood users

Year	Users
2015	0.5 million
2016	1 million
2017	2 million
2018	6 million
2019	10 million
2020	13 million

Actually, Robinhood got into temporary trouble during the recent volatility surrounding the GameStop Wallstreetbets forum recommendations. Clearing houses raised margin requirements, and Robinhood had to raise money, about 2.4 billion USD, which means Robinhood is very leveraged. Robinhood loans customers money to trade on margin, which means Robinhood effectively participates in its client's risky investments. Yes, I suppose Robinhood has relatively good risk management. However, this does not mean that Robinhood is not exposed to the volatility of the market. On the contrary, due to its young user base, Robinhood is a much riskier investment proposition than other brokerage companies like Goldman Sachs, Morgan Stanley and even retail brokerage companies like Charles Schwab and E-Trade.

All in all, taking account both the opportunities coming from its gamification interface, young demographic user base, cryptocurrency investment edge, but also Robinhood's inherent risks in its leveraged, small volatile stocks and cryptocurrency trading user base, I estimate Robinhood is worth around 14 billion USD currently. 

And this valuation is influenced by the current high valuation state of the stock market, helped by money creation by central banks, which I can only characterize as a bubble.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich