Crypto Billionaire Invests in Robinhood – Should You?


Crypto stocks are bouncing higher today along with Bitcoin (USD-BTC) and friends, none more than Robin Hood (NASDAQ:HOOD) after news broke yesterday that he attracted a very high profile investor.

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Sam Bankman-Fried not only founded the trading app FTX (USD-FTT) but has become something of a crypto celebrity, ranking #1 on the CoinTelegraph hot 100. And since mid-March, “SBF” has amassed approximately 30 million HOOD shares, according to its paper filing with the SEC. in street insider Thursday.

According financial timeThis equates to a 7.6% stake in Robinhood, worth $648 million. And Bankman-Fried only bought more, as HOOD’s share price fell lower in the past two months. His most recent trade was on Wednesday, when he picked up 3.2 million shares, almost an all-time low!

So… is SBF planning to release an Elon Musk?

The filing states that Bankman-Fried “intends[s] hold the Shares as an investment, and not[es] currently has no intention of taking any action to change or influence control of “Robinhood Markets, Inc. This makes sense, as Robinhood’s co-founders still control 63% of the company, and SBF’s stake comes with only 2.8% of the voting power.

Bankman-Fried is “open to any talk” about buying Robinhood in the future with his $21 billion fortune. But for now, Robinhood was just “something that I saw as an attractive investment, and there are plenty of areas for the company to grow and innovate in the future,” says SBF. Axios.

However, is this thesis valid? Fortunately, we have recent data on Robinhood, and companies like it, that give us a good picture of the opportunity here… for investors working with, presumably, less than $21 billion.

Robinhood: The Good, The Bad, And The Ugly

My theory is that Robinhood has what this cryptocurrency trading tycoon wants: a sizable options trading business.

While Sam Bankman-Fried’s FTX app has 5 million registered users… Robinhood has over 23 million, as of its latest earnings report two weeks ago. And many of these users must be business options:

In the first quarter, options trading brought in $127 million in revenue for Robinhood, compared to just $54 million from cryptocurrency trading and $36 million from stocks. All of these figures dropped considerably, year after year. But options revenue fell 36%, which was at least better than -39% for crypto and -73% for stock trading on Robinhood!

Options trading is clearly something that Sam Bankman-Fried sees as a good, stable business. Among the financial bigwigs he has been courting is Goldman Sachs, which may soon “advise FTX on the latter’s plan to offer retail crypto derivatives trading.” The block reported in April.

But what are the rest of us to take from the Robinhood earnings report?

In short: Robinhood’s customer base has remained fairly stable. Total accounts have hovered between 22.5 million and 23 million since last spring. Assets under custody fell sequentially, to $93 billion, but not too far from the $95-$100 billion range it has been in since last spring.

Monthly active users are down to 15.9 million, from their peak of 21.3 million in Q2 2021, but still well above 2020 levels… However, Robinhood’s revenue metrics have dropped dramatically, especially the average revenue per user (ARPU).

To put a fine point, Robinhood’s net income is down by almost half from its peak of $565 million in Q2 2021 to just $299 million now.

That’s in line with 2020 figures, but ARPU is definitely not! $53 per user is drastically lower than anything we’ve seen before from Robinhood; Until now, ARPU averaged $98 per user. All of this is happening while expenses remain high…so the net loss in EBITDA is higher than ever.

Clearly, the problem here is monetization. So it makes sense that we’d also hear a lot about how Robinhood is really working to diversify its offerings: with crypto wallets, a reward debit card, securities lending, and Lightning Network integration for bitcoin payments.

The loans are intended to attract “advanced customers,” who “although relatively small in number, generate a significant part of our revenue,” says CEO Vlad Tenev in the earnings call. He also said Robinhood is seeing “bright spots around direct deposit and replay adoption.” [Cash Card] use.”

Once this rewards debit card is rolled out to all customers “mid-year,” Robinhood expects “approximately 130 basis points of transaction volume” from exchange revenue (i.e. debit card fees). ).

The question is… how fast can Robinhood run these things when they were forced to? fire 9% of your employees?

Not to mention that Robinhood has its own baggage that it is bringing into this bear market. CEO Vlad Tenev is much less known for these earnings calls than his testimony before congress regarding suspicious business practices related to “order flow payments”.

That said, it’s worth noting:

Coinbase is in the same boat

The new earnings report from base of coins (NASDAQ:CURRENCY) feels pretty familiar after what we saw of Robinhood.

Assets on the platform decreased sequentially, from $278 million in Q4 to $256 million in Q1, but were still up 15% year over year. As for total customers, Coinbase reported 98 million verified users, a profit of 81% year after year

Monthly transaction users on Coinbase slipped from 11.4 million to 9.2 million in the quarter, but still a good 50% more than the prior year quarter.

Unfortunately…revenue of $1.2 billion was less than half of the prior quarter and also down from $1.6 billion in the prior year quarter.

The average revenue per transaction per user (ATRPU) was only $35, even worse than Robinhood! That compares to an average of $64 per user in 2021, and is more than Coinbase was seeing in 2019.

Expenses remain high, so EBITDA has dropped like a stone, from over $1 billion for most of 2021 to just $20 million in the first quarter. (At least it’s still a positive number, unlike Robinhood, which was $143 million in the red for Q1.)

Coinbase also offers other “subscriptions and services” such as Blockchain Rewards (when you stake your cryptocurrency through Coinbase) and its win campaign (in which users earn crypto by watching educational videos and answering a quiz). This segment is growing rapidly year over year, but at $152 million, it is very small compared to Coinbase’s transaction revenue (just over $1 billion).

If it’s monetization you want, and as investors… we should do it! – then I would say that it is worth looking at what Block (NYSE:square) is doing.

Block has a much more diverse appeal

SQ shares have also fallen brutally in the last six months, but it is likely in a much better position because its business is built on the things that HOOD and COIN are trying to salvage. his deal.

The use is actually in the main segments. Within Square’s original business, Afterpay (a buy now, pay later digital wallet) reported 10% user growth. And Cash App had “our strongest monthly engagement in March,” Block CFO Amrita Ahuja said in the earnings call.

Meanwhile, revenue fell 21% year over year. If SQ was just a bitcoin business, that would be more like -50%! But all other segments saw good growth, especially “subscription and services” (Instant Transfer, Square Card, Square Loans, and Software).

EBITDA was down year-over-year, but it wasn’t huge, and it still came in at $195 million in the first quarter; this was fairly stable from the previous quarter.

Monetization wasn’t too bad, as “we saw our highest quarterly Cash App revenue with both quarterly and yearly growth. Inflows per asset were down slightly year over year due to significant government outlays in the prior year period, but were up quarter over quarter.

“Direct deposit has been a growing mix of inflows and we’ve seen particular strength from recurring paycheck deposits, which were up more than 2.5 times year over year in March,” Ahuja said.

Bottom line: Block’s strength as a company is its multiple sources of income. (what a concept!)

When it comes to the public persona of Jack Dorsey, it’s all about bitcoin at this point. When people want BTC, they know to come to your business, and even casual Cash App users will see BTC stand out as an option for them. Meanwhile, Block Inc. is so well diversified compared to commercial applications that far from laying off employees to cut costs, they should still be able to invest in other Dorsey pet projects like Spiral and TBD that are helping build the Bitcoin ecosystem. .

This makes SQ a particularly intriguing investment among “crypto stocks” for those brave enough to buy the dip.

As of the date of publication, Ashley Cassell did not have (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publishing Guidelines. To get more news from The New Digital World delivered to your inbox, click here to subscribe to the newsletter.