Zero-fee stock trading app and cryptocurrency exchange Robinhood is preparing to hold its IPO, though no date has been set. TechCrunch reports on September 7, 2018, that the startup has enjoyed a period of remarkable growth, transitioning from a small startup to a bonafide competitor with enough cash flow to make a splash on Wall Street.
Rapid Growth and Skyrocketing Valuation
From humble beginnings just over a year ago, the startup is currently valued at $5.6 billion. In the intervening period, Robinhood has raised more than half a billion dollars in Series C and D funding round led by Russian firm DST Global. Speaking at the TechCrunch Disrupt SF event on September 6, 2018, Robinhood CEO Baiju Bhatt revealed that his firm is not in the early stages of working on a public offering including shopping for a chief financial officer and undergoing audits from the SEC and FINRA.
The prospective CFO’s main task at hand would be to help Robinhood sell itself to the market as a youthful and cheaper alternative to established competitors like traditional brokers and E* Trade. Potential investors would also need to be convinced that in spite of the downward trend of cryptoasset prices, a platform that permits cheaper trades than Coinbase would be sufficiently proficient as user acquisition as to compensate for smaller margins.
Currently, Robinhood has 5 million active customers carrying out trades of traditional assets and cryptos on its platform, which is double the number on E* Trade, despite having about 16 times fewer the number of employees boasted by E*. To date, it has raised a total of $539 million from a Who’s Who list of investment giants including Andreesen Horowitz, Kleiner Perkins, Sequoia and Capital G.
Business Model and Risks
Robinhood makes money in three basic ways. It earns interest on money in its user’s platform account, it sells order flow to stock exchanges that want more liquidity for their traders, and it sells Robinhood Gold subscriptions for extra user buying power at between $10 per month and $200 per month. Company figures released earlier in the year show that Robinhood Gold grew its monthly subscriber count by 17 percent.
Amidst this growth, the company is, however, facing the threat of competition from newer rivals including Revolut, a European banking app offering commission-free stock trading, Titan, a Y Combinator startup offering managed portfolio investment, and even JP Morgan which now gives its customers 100 free trades so as not to be undercut by Robinhood.
Essentially, Robinhood’s goal is to use computers to democratize stock trading and make it cheaply accessible. It achieves this by avoiding the costs inherent to larger competitors like banks such as offices and branches, TV commercial spots and human trading executives. Robinhood skirts around all these costs with a lean engineering team and a viral marketing strategy that enables the app to effectively grow its own user base.
The next step of growth is its proposed ICO, and the correct choice of CFO may just be the key to unlocking growth that traditional competitors can only dream of.