In spite of repeated outages, Robinhood is (still) raising funds
Robinhood has set up a business model that allows it to earn income from various sources: premium subscriptions, retro-commissions from market-makers, securities lending. The American nugget that built its success on a stock market application without any fees has more than 13 million users to its credit. Despite repeated outages, Robinhood continues to attract funds.
At the beginning of March, when volatility was in full swing in the financial markets, the Robinhood application experienced three critical outages. The trading solution popular with Millenials was widely probed by the regulator (Finra) for these embarrassing interruptions. In addition, a petition was even circulated to prohibit the publisher from offering its brokerage services.
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Robinhood has 13 million active users
This did not prevent the stock exchange application from completing a new round of financing, to the tune of $280 million, for a valuation of $8.3 billion. The American nugget that built its success on a stock market application without any fees has more than 13 million users to its credit. This figure is extremely high when compared to the number of French individuals who invested on the stock market between the end of February and the end of April: 580,000 – including 150,000 new investors.
Although it does not charge a commission on each transaction to its users, Robinhood has set up a business model that allows it to earn income from various sources: premium subscriptions, retro-commissions from market-makers, securities lending, etc. With a consumption peak in March, its revenues would have tripled to reach $60 million.
Slower valuation for the fintech company
TechCrunch has taken up the Robinhood fundraising story, whose pace of valuation has slowed significantly over time. After raising $363 million for a valuation of $5.6 billion in 2017, the fintech company then raised $323 million for a valuation of $7.6 billion in 2019. With a valuation of $8.3 billion for this last round of financing (for a round of $280 million), Robinhood seems to have trouble convincing that it is worth much more.
An industry expert interviewed by the NY Post is also critical of the start-up: “13 million users is a lot. $280 million for a solution that can’t handle volumes is too much. […] It could be bought out by a major bank, but I doubt that such a deal would reach half its current valuation.”
If there is any doubt, Robinhood has been a major factor in turning the whole industry upside down. Brokerage giant Charles Schwab lined up last October by cutting commissions on trades before buying out rival TD Ameritrade the following month for $26 billion. For its part, investment bank Morgan Stanley acquired broker E*Trade for $13 billion in February 2020. Robinhood, which was among the giants of the industry, has since been overtaken by its counterparts.
What about the French market? Since La Française des Jeux was floated on the stock market last November, individuals seem to have regained a taste for the stock market. In an interview, the CEO of Boursorama Banque, Benoit Grisoni, was pleased with the record number of securities accounts opened during the month of March.
Online banking saw its order volumes triple compared to a normal month. It remains to be seen whether the trend will continue in the months to come.
(Featured image by nattanan23 via Pixabay)
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