Robinhood wants to go public despite a loss

The American neo broker already manages $ 82 billion in customer assets. With the help of the major banks JP Morgan and Goldman Sachs, Robinhood is aiming for a company valuation of 40 billion dollars. But the business model is controversial.

The Robinhood app

Dhe securities broker Robinhood, founded in California in 2013, is approaching its upcoming IPO on the American technology exchange Nasdaq with a tailwind, although it was in deficit in the first quarter of 2021.

In the second half of the week, the company concluded a settlement for almost $ 70 million with the US financial regulator Finra for allegedly misleading customers, too lax controls on risky options trading and technical breakdowns, and then made the publication of its securities prospectus a day later its IPO specifically.

Accompanied by the two major American banks JP Morgan and Goldman Sachs, Robinhood is reportedly aiming for a company valuation of 40 billion dollars. In the latest round of financing, financial investors like Andreessen Horowitz and Sequoia as well as celebrities like the rapper Snoop Dog and the actor Jared Leto put their money in Robinhood at a valuation of 30 billion dollars. But Robinhood’s trading app is benefiting tremendously from the fact that a young generation of investors is gripped by a securities boom.

In Germany, too, many young people discovered securities trading via smartphones during the corona pandemic. In this country, neo brokers such as Trade Republic and Smartbroker, but also established securities houses such as Baader, Steubing or Flatex reported a strong movement in their business.

The Californian neo broker Robinhood achieved a small profit of $ 7 million in 2020 after a loss of $ 107 million a year earlier. In the first quarter of 2021, however, the company suffered a whopping loss of 1.4 billion dollars with sales of 522 (previous year’s quarter: 439) million dollars.

As the prospectus also shows, the number of customer accounts grew by 143 percent in 2020. In the first quarter of 2021, the number of users rose from 12.5 to 18 million, who invest almost 82 billion dollars through Robinhood.

Robinhood’s assets under management at the end of the first quarter of 2021 were approximately $ 65 billion in stocks, $ 2 billion in options, $ 11.6 billion in cryptocurrencies, and $ 7.6 billion in cash. The average user is 31 years old and checks his depot 7 times a day, said Robinhood on the occasion of the IPO. Every second person at Robinhood opened his or her very first share portfolio.

Controversial business model

Robinhood’s business model is not without controversy. Customers do not pay any fees for their transactions, but Robinhood makes money by referring the transaction to large Wall Street corporations. All brokers do that to a certain extent.

But Robinhood is accused of encouraging its users to trade as much and risky as possible. In January, Robinhood then restricted trading in the Gamestop share due to large price fluctuations, to the annoyance of its users. Previously, many young investors had just delivered a spectacular showdown of strength in the Gamestop share, which has long been almost worthless, with their trading via Robinhood with a hedge fund.