Robinhood IPO

The true top in the dot-com bubble had to have been the public offering of Palm in the year 2000. Does anybody remember that?

Likewise, Robinhood’s IPO portends to be the equivalent for retail investors gamblers. These sorts of things can only be determined in retrospect, so such statements are not predictive.

That said, Robinhood’s metrics are actually pretty good!

As of March 31, 2021, they have $81 billion in assets under custody and 17.7 million active users. After the IPO they will have 842 million shares outstanding, for a market cap of about $30 billion.

What do we compare this with? Interactive Brokers is a logical counterpart – both companies have functional controlling shareholders, so public investors are simply there for the ride.

IBKR’s public offering is about 22% of the “real” company, but I’ll put a lot of technical stuff aside and state their total market cap is $26 billion on 417 million shares.

This is very similar to Robinhood.

IBKR also provides very good data to the public. More so than Robinhood. For example, Robinhood does not disclose how many trades it executes, while IBKR does.

At Q1-2021, IBKR executed 306 million trades. They have 1.3 million customer accounts and total customer equity of $331 billion. Almost ten times less customers, but four times more customer equity.

In terms of the balance sheet, IBKR has a book value of $9.4 billion, and HOOD post-IPO is around $7.3 billion.

HOOD, however, is growing like a weed. Their Q2 estimate is 21.3 million active users and $102 billion in assets under custody.

The big difference is that HOOD isn’t making that much money (most of their revenues are being sucked up by operating costs), while IBKR is making a ton of money.

But given the amount of capital people are willing to dump into the Robinhood brokerage, coupled with encouraging them to gamble and/or pitch them financial products, makes me think that their valuation isn’t ridiculously stupid. It’s in the ballpark of where it should be.

Despite loving the IBKR platform (it truly is the best, once you use it, you can’t go back), I would not be an IBKR investor at this valuation, nor am I interested in HOOD stock.

My primary concern for HOOD investors is not the valuation. It is that their technology has some sort of problem where they end up like Knight Capital and simply blow themselves up. It’s a much more relevant possibility for them (simply because they are so new) compared to very seasoned brokers like IBKR that have been at it for decades.