You can listen to an audio version of The Generalist on Spotify or Apple Podcasts .

This report is presented in collaboration with Masterworks…

art is an under-appreciated asset class. indeed, 84 % of ultra-high-net-worth individuals invest in art and other collectives, per a 2019 Deloitte review. That makes fiscal common sense — contemporaneous art outperformed the S & P 500 by 174% from 1995 through 2020. Wild.
Unless you had a aplomb $ 10 million lying about to buy a Picasso, though, retail investors have been locked out of this asset class — until Masterworks came along. Founded in 2017, the company allows investors to buy fractional shares of masterpieces by geniuses like Basquiat and Banksy. After sending nowadays ‘s piece, I plan to buy a few shares myself. I have my eye on a Rothko. If you ‘d like to join me, Generalist readers can skip the waitlist via this individual liaison. *

Team

Megan Kelly

Howard Lindzon George Pearkes Louis d’Origny Meera Clark Julie VerHage-Greenberg Michael Sidgmore Jake Gibson Yoni Rechtman Sid Jha Mario Gabriele One way to look at S-1 filings is as an invitation to a party.
The company is the eager host, keen to entice you, the investor, to join them. They will explain that they are extremely fun people who have long histories of throwing the biggest ragers with the pretty people and that honestly, you are late, very former for this one, this party, which may be the best always.
These are the contours of the argument, but each party differs in appeal and aesthetics. Unity ’ s S-1 is an invitation to candy flip in Joshua Tree, spending the weekend staring into the metaverse. Roblox ’ second is a summons to the birthday party of a precocious, terrifying thirteen-year-old. Bumble is a Paint N ’ Sip for young female executives. Palantir ’ second is a LARP of the First Crusade — take up arms, repel the infidels !
Each has its own merits and is internally consistent. Its appeal depends on who you are and what you care about — these filings have a vibration, and if you parcel it, then possibly you will come along.
Robinhood does not know what party they are throwing.
Read part of the S-1 and you might expect a symposium on the democratization of finance held in a hedge funder ’ s brownstone. Read another and you ’ d imagine a Davey Day Trader fan meet, spilled pitchers lacquering the tables of a local lacrimation hole. ( Alight on a third gear and you ’ five hundred anticipate a nerdy sleepover, all esoteric comic books, and wonkish, penetrating conversation. )
Depending on where you look, Robinhood is animated by contrasting energies, trying to convince you of the news and nobility of its endeavor at the like fourth dimension that it assures you of its gaiety.
This is clear even within the first base few pages. One spread proclaims “ Our mission is to democratize finance for all ” ; the following alludes to the Game Stop debacle ’ s chief supporter with a brash “ ROAR ” watch. A similar juxtaposition plays out a here and now belated : right before Robinhood ’ sulfur founders extoll their values — clear-minded and sober as they are — they wink again at Roaring Kitty with this paraphrase : “ If you like these values, you may like the neckcloth. ”
This is amusing, surely. But it leaves the mental picture of a business diffident of whether it wants to be the most dangerous playfulness company or the most playfulness serious company. Does Robinhood want to be the Allegiance of Magicians from Arrested Development or Mean Girls ’ “ cool Mom ” ? Is this an addictive social app with an economic agenda, or a bank with a sense of humor ?
The heart of this conflict seems to be that Robinhood isn ’ t quite sure what office reference it ’ second appealing to. It seeks the affection of the YOLO ’ ing retail trader while it looks to garner the entrust of the large fiscal institutions from which it makes its money.
This legal separation of users and gross is not unique, of course, but Robinhood ’ randomness place is made fraught by the cultural battle in which fiscal markets are embroiled. The caller not alone has to appeal to two customer bases, it has to appeal to two customer bases that hate each other. The fact that the GameStop “ pervert ” despises short-sellers like Melvin Capital, while such affluent institutions condescend to the common man makes Robinhood ’ s “ servant of two masters ” gambit flush trickier.
That the business finds itself in this position is, curiously, a symbol of its force. No other ship’s company has played as significant a function in making investing a cultural phenomenon as Robinhood, and if it is pulled by competing forces, that is only because it is at the heart of profound shifts. This, along with the truly jaw-dropping numbers will be adequate to persuade many.
Robinhood may not understand what party it ’ second throwing. Like the high-schooler organizing their first base rager, the company seems bang-up to boost its attendance by saying one thing to the jocks, another to the emos, a third base to the hipsters. That lack of definition may give pause, and yet, there ’ s no doubt Robinhood ’ sulfur invitation has that indefinable quality of the best of bacchanals : you plainly know you won ’ thyroxine want to miss it .

Mentions

• Crypto: 318 
• Options: 203
• Margin: 125
• Vladimir Tenev: 109
• Baiju Bhatt: 93
• PFOF: 65
• Dogecoin: 10
• Gamestop: 5
• Citadel Securities: 2
• Confetti: 2
• Meme stocks: 1

History: Occupiers of Wall Street

A trope of entrepreneurship is that it is the “ founder ’ mho mind ” that frequently unlocks step changes. absolve of preconceptions, the ingenue sees moves the whine veteran ruled out hanker ago.
If not quite beginners, Robinhood ’ randomness founders, Baiju Bhatt and Vlad Tenev, were surely interlopers in the universe of finance. converge as undergraduates at Stanford, the pair found they had a capital deal in common. Bhatt once remarked on the similarities between him and his future co-founder :

We were both only children, we had both grown up in Virginia, we were both studying physics at Stanford, and we were both children of immigrants because our parents were studying PhDs.

It was that sake in physics that first brought Bhatt and Tenev together. In 2005, both attended a summer inquiry platform held at Stanford ’ s Palo Alto campus, and cursorily hit it off. By senior year, Bhatt and Tenev were not lone rooming together but planning their future .Early days, via TechCrunch Following in the footsteps of their parents, both first turned to academia, matriculating to graduate programs. Bhatt was the first to feel the puff of entrepreneurship, moving to New York City. not long after, he persuaded Tenev to drop out of his PhD platform and join him.
Like many other numerically gifted graduates, Bhatt and Tenev found themselves describe to the graveness well of traditional finance, and in particular, to the stimulate world of high frequency deal.
In 2011, Chronos Research was born from this newfound passion. The company made money by selling trade strategies to hedge funds and banks. This led the pair, who frequently worked from their Williamsburg apartment, to have a natural awakening when a sealed campaign took bear in 2011.
Occupy Wall Street swept into Zuccotti Park, its demand for greater economic parity capturing ball-shaped attention. That shone a lightly onto the work Tenev and Bhatt were doing. At a party, Tenev was asked why retail investors couldn ’ deoxythymidine monophosphate place trades at the like low cost as the institutional investors that Chronos served ? After thinking about it for a few seconds, Tenev responded that he didn ’ triiodothyronine know.
After he left, Tenev couldn ’ triiodothyronine get the wonder off his mind. Though it was recently, he called Bhatt to talk through the predicament. Bhatt would go on to stay astir all night, intrigued by the questions Tenev posed. The first base seeds of Robinhood had been planted.
It would take the duet two years to execute their beginning trade. Though that serendipitous conversation had sparked an compulsion with the idea of offering commission-free deal, finding will backers presented a considerable challenge. Some venture capitalists expressed incredulity that the company could make money without a fee structure, while others couldn ’ metric ton understand why anyone would want to play the markets from the limited screen of a smartphone.
On the path to securing a $ 3 million seed round of golf, Bhatt and Tenev ’ s fledgling business was rejected by 75 investors before meeting their first believer : Jan Hammer. The Index Ventures partner had previously worked at General Atlantic, a growth fairness firm that had backed ETrade. Just as that commercial enterprise had popularized on-line retail induct, Hammer believed Robinhood could do the lapp for the fluid era. This was a platform shift and it presented a real opportunity. Google Ventures and Marc Andreessen shared Hammer ’ second conviction, completing the cycle.
That money gave Bhatt and Tenev the time to work, a well as the bank symmetry necessary to mollify regulators. As Tenev noted :

They don’t want just a broker to come up with no capital and get a bunch of customers and then close up shop overnight. That’s a really bad situation.

Showing admirable grok for founders building in the consumer distance for the first time, Robinhood ’ mho founders built a strong pre-launch hum. Inspired by once-beloved, now-defunct electronic mail provider Mailbox, Robinhood opened up a waitlist. Their simple land page learn, “ Commission-free trade, stop paying up to $ 10 per barter. ”
The landing page that snagged 1 million email addresses Within hours, Robinhood took flight.

I remember distinctly it was a Friday night…Everyone goes home, and I wake up Saturday morning, and I open up Google Analytics, and I see something like 600 concurrents on our site, which nobody knew about at that point. I was just like, “What’s going on? This is not normal. Something must be wrong.” Right?

And I’m looking at the analytics — I see a lot of traffic, or the majority of it, coming from Hacker News… And I open up Hacker News, and I see No. 1: “Chinese Land Spaceship on the Moon,” No. 2: “Google acquires Boston Dynamics, the Robotics Company,” and No. 3 was: “Robinhood: Free Stock Trading”…[Thirty five minutes later] we’re at No.1.

The results were startling. Despite being caught indeed murder guard, Robinhood had so far to configure its confirmation emails, the company landed 10,000 signups on day 1. Within a workweek, it had reached 50,000, and by the end of the class, inactive with no app, Robinhood had 1 million bequeath users.
somehow, Robinhood had found incandescent product market fit with no merchandise. If Bhatt and Tenev were relative ingenues to the world of finance, there was something fitting about the fact that two young physicists had constructed a skyrocket ship. A company founded off the bet on of a social movement was well on its way to becoming a cultural one, occupying Wall Street in a manner its founders could never have imagined.
( Aside : caller mythologies are created post-hoc. In the years that follow bang-up successes, the foreign details and strange digressions are frequently sanded down and lost. We think we may have found one of those under-discussed artifacts. In 2013, two years before an “ official ” launching, the company seems to have launched an app on Apple ’ s memory. Could it be a different company ? possibly, but given the Seller diagnose is listed as “ Chronos Research, ” we ’ rhenium inclined to believe it ’ s Tenev and Bhatt ’ second function. Far from the slickness product that came late, this iteration of Robinhood was a sociable trading app that allowed you to compare trades with other users and rated performance on a leaderboard. Was this product functional ? What caused the pivot away from social ? We don ’ metric ton know for surely, but we hope to hear the story someday. The one thing we can deduce is that the pair are fans of the gloriously feral drollery It ’ randomness Always Sunny in Philadelphia — one of their stock usernames is listed as “ Mantis Toboggan. ” That ’ s doctor Mantis Toboggan to you, Vlad. )
A proto-Robinhood?

GameStop: Anatomy of a stock block

The GameStop short power play was a fiscal opera that rivals the havoc of the 1980 ’ s leveraged buyout play. To understand what happened, we must first base meet our players.
At the center of the scene is GameStop ( GME ), a mainstay of American malls that sells television games and associate gear. Like Blockbuster before it, GME ’ s brick-and-mortar model has been buffeted by the increasing digitization of entertainment. Shop closures forced by the coronavirus turned what seemed to be an grim decline into an immediate, experiential menace. From January 1, 2020 to April of the like year, the store dip from above $ 6 to $ 3.12.
Expecting GME ’ s slump to worsen, hedge funds like Melvin Capital took short-circuit positions in the company. ( They started doing so in 2014, in fact ). interim, some respect investors believed the stock had been oversold. Though “ Big Short ” celebrity Michael Burry had snaffled up a 3.3 % stake in the business in 2019, it was Ryan Cohen’s affair over a year subsequently that raised the temperature. In November 2020, the Chewy laminitis revealed his firm had built up close to a 10 % situation in the commercial enterprise and intended to push for the caller to focus on on-line sales.
partially influenced by this natural process, the stock began to generate interest on Reddit forum, r/wallstreetbets ( WSB ). deoxyadenosine monophosphate early as 2019, Keith Gill — who goes by “ DeepFuckingValue ” on Reddit and “ Roaring Kitty ” on YouTube — expressed his matter to in the company, buying bid options. Others began to follow suit.
( If you ’ ra not surely what a call choice is, don ’ deoxythymidine monophosphate worry. “ Calls ” are an agreement in which the buyer purchases the right, but not the obligation to purchase a stock at a sealed price. For this privilege, the buyer pays a “ premium. ” )
This bodily process hit hyperdrive at the turn of the year. On January 11, 2021, GME announced that Cohen and two his lieutenants had joined the company ’ s board of directors, with the aim of driving digital growth. The markets lost their minds.
Within three days, GME had risen 100 %, within touching distance of $ 40 a share, and showing no signs of letting up. even after Citron, a research firm with a history of identifying doomed businesses, raised its concerns, GME only accelerated. WSB was at the heart of a dizzy rise that combined the diligent research of an institutional investor, the excitement of a religious faction, and the meme-savvy of a fresh adolescent.
Couching their documentation of GME as a struggle between internet rebels and anodyne money men, WSB ’ s residential district galvanized a short thrust, which became a gamma pinch.
This is wonkish stuff. A basic definition of a couple terms hera :

• Short squeeze. Investors that took a short position on GME did so because they thought the stock would go down. When it went up instead, these investors cap their losses by buying the stock, before it goes up even more. This has the effect of increasing the stock’s price. 
• Gamma squeeze. Remember what we said about calls? Ok, good. Well, when a buyer purchases a call, the “market maker” (firms like Citadel Securities that ensure there’s liquidity to buy and sell stocks) hedge their exposure by actually buying the stock. When the stock price goes up, market makers have to buy more, even as the number of call purchases increases. The result is an intensifying loop. 

The leave was that GME went stratospheric. The neckcloth surpassed $ 480 and even hit $ 500 in pre-market trading one day. The equity had started the class at just $ 17. ( Keith Gill reportedly turned a $ 53,000 options play into $ 48 million. )
normally, such frenzies are to Robinhood ’ south benefit. As we ’ ll discus soon, the company ’ randomness tax income mannequin is tied to usage and the GME mania saw frantic trade action. But that ’ s only genuine within limits.
Though the summons of buying a store on Robinhood looks frictionless, the reality is that a series of building complex mechanisms and credit relationships occur behind the scenes. When a exploiter buys a stock, it isn ’ thyroxine “ settled ” immediately, meaning the buyer doesn ’ t take charge of the fairness and the seller doesn ’ thymine receive money right away. alternatively, settlement occurs after two days, referred to as “ T+2. ”
That means brokers like Robinhood have to take credit rating risk : they ’ re guaranteeing money to the seller that has yet to be received. Clearing houses and organizations like The Depository Trust & Clearing Corporation ( DTCC ) police this kinship, ensuring that brokers have sufficient collateral to provide this credit.
In the middle of the night of January 27, Robinhood received word that GME ’ sulfur volume meant it would have to post billions of dollars in collateral by the following dawn, or face a trade blackout on the platform. The company had raised more than $ 2 billion over eight years, now it was being told it needed to eclipse that kernel in a matter of hours.
Tenev and Bhatt moved quickly, reaching out to investors with the kind of ask rarely requested by a revenue-generating unicorn : send us as a lot money as you can. To expedite the process, Robinhood offered attractive terms with discriminatory clauses for those that acted first. The first class of investors capitalized a convertible note that offered a 30 % discount to the IPO price, with an extra 15 % in warrants.
Backers sprang into military action. Ribbit, Sequoia, a16z, Index and others sank $ 3.4 billion into the business over the advent days. By the following Monday, Robinhood had received more money than it needed and those who dallied saw their funds either rejected, or put into a deal with a higher detonator and no warrants attached.
That financing staved off a accomplished closure, but Robinhood had not escaped unharmed. Like many early trade platforms including Webull, Public, and M1, Robinhood halted trading on more than a twelve names, including GME. Though early players struggled with the same strictures, Robinhood ’ s cryptic message prey rumors that the company was in collusion with the traditional capital class. many remarked on Robinhood ’ s relationship with Citadel Securities, given that the market godhead is a major beginning of tax income.
Before Tenev had the opportunity to wrestle back the narrative ( something he would fail to do repeatedly, demonstrating remarkable hamfistedness ), the backfire had begun.
Portnoy ’ s complaint arrived early, with Barstool ’ s liver-cheeked CEO predicate “ Robinhood is dead. ” Others soon joined in : Ocasio-Cortez was angry, WSB was apoplectic, Twitter raged and burned. SPAC-smith extraordinaire, Chamath Palihapitiya referred to Robinhood as “ corporatist scumbags ” ( whilst obviously forgetting his brief, lucrative stint torpedoing our collective neurochemistry ).
Of course, customers had every right to be angry. While users could sell their shares in businesses like GME, buy had been shut off.
Customers and commentators were not the only ones to take issue with Robinhood. In mid-february, Tenev, Ken Griffin of Citadel Securities, Gabriel Plotkin of Melvin Capital, Steve Huffman of Reddit, Jennifer Schulp of the Cato Institute and Keith Gill testified before Congress. Though Tenev argued that the trading restrictions were put into topographic point to meet the increased regulative demands ( aka : the billions of dollars in capital ), lawmakers didn ’ thymine seem wholly convinced.
Whatever one ’ sulfur position on Robinhood ’ s handle of the situation — and surely evening Tenev himself would agree there is room for improvement ​​— the company seems to have emerged better for the have. The S-1 notes an increased investment in customer service, deoxyadenosine monophosphate well as hardier infrastructure designed to handle 30x the volume of 2020, and 3x the “ highest load we ’ ve seen in the past. ”
The saga international relations and security network ’ thyroxine over, of course. Though Robinhood did receive a $ 70 million FINRA penalty for unrelated outages in March 2020, and a $ 65 million finely for failing to disclose earning tax income via Payment for Order Flow, no such fines have been levied against the occupation for the GME debacle. Whatever Robinhood receive, it will do indeed as a public company .

Market: The market of markets

Robinhood is the rare company that is not only capitalizing on large, existing markets, but expanding them through its activities.
retail invest in the US alone represents a significant opportunity. Charles Schwab estimates retail traders have total assets of approximately $ 50 trillion. The participation of individual investors has grown quickly in holocene years, with retail investors nearing 20 % of entire US fairness volume, doubling from 2010. Mobile-first deduction brokerages like Robinhood have undoubtedly contributed to that lift.
retail trade ’ s share jumped from ~15 % to ~20 % from 2019 to 2020, indicating that is not the whole narrative. much of this appreciation seems to have been driven by the changes wrought by the coronavirus, with excitability attracting speculators, lockdowns enticing the bored, and stimulation checks providing individual fluidity. depleted interest rates and the prolong bull marketplace are other macro factors that emphasize we should not excessively ascribe the “ retail revolution ” to Robinhood and its coevals.
inactive, there ’ s no doubt Robinhood has created new investors. between 2015 and 2021, more than half of its fund accounts came from first-timers. It has established itself as the default on-ramp, particularly with younger generations. This has not only impacted the complexion of markets, but of culture. The past class ’ s NFT mania can be traced spinal column to the neobroker as investing and possession become means of public self-expression.
There ’ second reason to believe in a marketplace expansion report. A Pew Research survey found that precisely 35 % of Americans bear stocks, bonds, or common funds outside of those in IRA or 401 ( potassium ) accounts in 2019. Robinhood will believe a meaning dowry of the remaining 65 % can be converted to the retail crippled. even without factoring in the international opportunity — significant but complicated — the company clearly has board to run.
Of course, Robinhood is not just a broke for traditional equities. In 2018, the firm rolled out cryptocurrency deal, now a meaningful part of the business. For the three months ending March 31, 2021, 17 % of the company ’ s sum tax income came from crypto transactions. This was astir from 4 % the previous one-fourth. much of it arrived from meme-project Dogecoin.
Though the default in traditional retail trade, Robinhood is much less established in the crypto world. Coinbase, for case, dwarfs the firm when comparing either transaction-based gross from crypto, or the crypto assets under detention — $ 223 billion versus $ 11 billion. Yet, it hush feels like Robinhood can expect emergence here. only fixed non-believers will think crypto has reached its pinnacle, and as the marketplace grows Robinhood will hope to maintain share, at the very least. As the lines between equities and cryptocurrencies blur, it ‘s reasonable to think that businesses that offer all-in-one products, like Robinhood, may stand to benefit.
This is entirely half of the picture. surely, Robinhood can make a strong growth casing based on market tailwinds. But what happens when the party stops ?
Since its origin in 2011, Robinhood has surfed a bull melt. That has enticed more individuals to trade — it ’ s a lot more fun to bet on your front-runner companies when their value increases. It remains to be seen whether users stick around when prices plummet and, unlike 2021, take a while to bounce binding.
history paints a bare portrayal. Marc Rubinstein at net income interest looked at ETrade activeness from the dotcom bubble. The number of trades per day peaked in 2000 — then trailed off radically as the commercialize fell. Within the following five quarters, it halved. retail trade took years to recover, enthusiasm dampened by the downturn .Net Interest Would Robinhood suffer a similar destiny ?
possibly. First of all, most of the company ’ sulfur gross is tied — if consumers retreated, topline would decline. More than that though, is the fact that Robinhood ’ mho gross is disproportionately tied to options trade.
In 1Q21, Robinhood made $ 198 million from options versus $ 133 million from straight equities. This is despite the fact that in his congressional testimony, Tenev noted that good 13 % of customers trade options on a monthly basis. Though smaller in number, these risk-loving traders are very where the money comes from, with Robinhood earning $ 2.90 per options trade versus $ 0.40 for an equities craft.
Would these notional players disproportionately flee a wear market ? Will there be appetite for riskier trades in a depression ?
A long-run stake on Robinhood is either a bet on the demeanor of retail investors across market cycles, or a gamble on Tenev ‘s ability to build option business lines before the music stops. The party ’ s cash management hints at broader ambitions, but entirely time will tell how a business built in clean weather withstands a confirm storm .

Product: Frictionless finance

Robinhood is a business with a clear headline product : commission-free trade. Around that center orbit a number of secondary coil units designed to either drive gross in their own correct or bolster the core. Let ’ s dig into each .Images from Robinhood’s S-1

Brokerage

queerly adequate, Robinhood was not the first gear $ 0 brokerage. Five years before the caller was founded, Zecco opened its doors. The firm raised $ 35 million before selling to TradeKing.
regardless, Robinhood is nowadays synonymous with this model. That is in no little part down to the stellar merchandise the team has built. From its earliest days, the caller demonstrated an obsession with beautiful design and intuitive functionality, with a lot of that repel coming from the more artistic of the two co-founders : Baiju Bhatt. tied little things, like removing the need to fill out ten screens of information to sign up and get trade, contributed to a smooth know.
today, Robinhood is arguably the most enjoyable, frictionless place to trade stocks. You can buy and sell shares in your favorite companies with good a few touches of your fingers. A phone number of extra features add to the experience :

• Fractional shares. To make ownership more accessible, Robinhood allows users to purchase fractions of shares. Rather than buying a single $3,500 stake in Amazon, you can put $50 to work.
• Recurring purchases. Consumers that want to “dollar cost average” their way into a security can do so by setting up recurring purchases.
• IPO access. Rather than wait for a company to start trading on the NYSE or Nasdaq, users can buy shares of a new company at its IPO price. This is usually reserved for high-net worth individuals and can have a meaningful impact. For instance, if you had wanted to buy Affirm at the IPO rather than waiting for it to start trading, you would have gotten in at $49 vs the $90 at which it opened. 
• Options trading. As we’ve mentioned, users can trade options, an offering that has been lucrative for Robinhood. 

This suite has proven democratic, with 18 million accumulative fund accounts on the platform. The company ’ s drug user engagement puts them on equality with run consumer social networks : 98.3 % of all fund accounts on Robinhood use the merchandise monthly. And their DAU to MAU proportion is 47 %, a exchangeable ratio as leading social platforms.
( It should be said that the room Robinhood defines some of these terms is a bit bleary. For model, the caller counts anyone that “ loads a page in a world wide web browser ” as a MAU, which is rather liberal. however, it ’ second clear the party ’ mho core product is winning. )
This makes it worth wondering whether this level of activity is … good ? Is the ability to trade options in a matter of seconds something that should be promoted ? Do we want social media dynamics paired with the emotional play of gambling ?
Robinhood rejects this moralize. Rather than telling us what users can or can ’ metric ton do, the company orients around providing access. In that dimension, the party ’ second brokerage is an undeniable success .

Crypto

Robinhood beginning promoted its crypto product with the depressing campaign motto : “ Don ’ deoxythymidine monophosphate Sleep. ” It was a pun on the team basically working at all hours to launch the new feature of speech within weeks, with the rallying war cry plastered across its offices. While traditional markets close at the end of the day and condescend to take a day or two off, crypto trade is constant. That serves to bring users into the app during off-hours, and allows the company to monetize different investor interests.
presently, Robinhood supports seven cryptocurrencies : Bitcoin, Bitcoin Cash, Bitcoin SV, Dogecoin, Ethereum, Ethereum Classic and Litecoin. Market datum is available for 10 more .

Gold

As one former Robinhood employee noted, Tenev and Bhatt went a long clock before settling on a tax income model. You can see the implications of that with Robinhood Gold, a subscription offer for premium users.
For a $ 5 monthly tip, subscribers receive the surveil benefits :

• Instant deposit access. Gold members get access to $5,000 to $50,000 as soon as a deposit is made. 
• Professional research. Thanks to an arrangement with Morningstar, subscribers can access research on “approximately 1,000” stocks. 
• Market data. Nasdaq Level II market data is supplied, giving greater visibility into the depth of orders. 
• Investing on margin. If approved, users can borrow funds to make investments. Any funds borrowed above $1,000 incur a 2.5% annual interest rate. 

presently, 1.4 million use the service .

Cash Management

Robinhood ’ s first foray into other bank services was something of a debacle.
In 2018, the company attempted to launch a check and savings account that offered a 3 % matter to rate and no fees. unfortunately for Tenev and Bhatt, the Securities Investor Protection Corporation refused to insure the party ’ randomness accounts.
It took a full year for the clientele to retool the product, releasing Cash Management in late 2019. The product allows Robinhood customers to earn sake on their cash holdings. A stigmatize debit card is besides provided. Most importantly, accounts are insured by the FDIC. Despite that snafu, the intersection uptake is adequate, with 3.4 million using the service. That ‘s better than some anticipate, but still far cry from the +8 million that Chime has racked up .

Snacks

Robinhood ’ s first learning was a media company : MarketSnacks. For an undisclosed sum, the neobroker snapped up the audience and endowment of the newsletter and podcast, rebranding it to “ Robinhood Snacks. ”
Snacks, Robinhood’s media arm That now looks like a quite grok move. The S-1 reports that Snacks has amassed 32 million subscribers, with the daily podcast downloaded close to 40 million times in 2020. This gives the tauten a clear advantage in the conflict to stay top of mind, evocative of Bloomberg ’ s playbook, revamped for the twenty-first hundred .

Learn

One of the most frequent arguments leveled against Robinhood is that the company enables and encourages inquisitive trade in an audience ill-equipped to gauge its risks. As a counterattack, the tauten has devoted prison term to its “ Learn ” feature, a “ library of fiscal literacy resources. ”
Whether this is sufficient is arguable, and it ‘s indecipherable how we should parse the numbers Robinhood provides us with in the charge. Per the S-1, seven million accumulative views had been logged on Learn, which at inaugural bloom feels preferably low.

Skeptics may hope the party finds ways to tie this fiscal education more closely to the core product .

Business Model: PF-OFF

Though Robinhood does earn some money from Gold subscriptions, 75 % comes from transaction-based gross. That means the firm earns when consumers trade equities, options, and crypto currencies.
At the plaza of this gross is a controversial commit : payment for Order Flow or PFOF. As we noted earlier, Robinhood has disguised this tax income reference in the past, but in the wake of GME, it has come under increased examination.
We ’ ll do our best to unpack both sides of the controversy at a high-level, and delve into its implications on Robinhood ’ s mannequin .

What is PFOF? 

PFOF is a practice in which brokers receive money for sending orders to a third-party, normally a market-maker.
When you buy $ 100 of Apple, for model, Robinhood ( the agent ) has the choice of directing your trade wind somewhere. While it could send your ordain straight to a standard exchange, market makers are normally able to offer a better monetary value.
alternatively of costing $ 150 per contribution, for model, Citadel Securities ( the market maker ) might be able to get it for you for $ 149. ( The difference is normally fractions of a penny, but this is easier to keep lead of. )
The result is a $ 1 savings. Robinhood keeps some of that, while passing on a assign to you, the exploiter, in the shape of “ price improvement. ” Robinhood has efficaciously earned money from sending your barter to Citadel Securities .

What are PFOF’s benefits? 

In many respects, PFOF looks like a win/win/win.
Customers get a better price than they would have normally, brokers make money by providing this price improvement, and commercialize makers profit from the spread of “ internalizing ” the brokers orders.
In 2020, investors received roughly $ 3.7 billion thanks to PFOF-driven price improvement. not bad, correct ?
PFOF apologists will besides note that the rehearse is widely used both in traditional fiscal markets and beyond. The only big exchanges that don ’ thymine monetize through PFOF are Fidelity and Public, with the latter tauten making it a core character of its differentiation. Crypto liquid pools leverage the access to build decentralized trade venues .

Why do people dislike it?

The knocks against PFOF are that it ’ s uncompetitively run, unevenly shared, and ultimately more expensive.
first, PFOF is not a in truth competitive work. There is no auction process for different orders, mean there ’ s no guarantee that customers are in truth getting the best price. alternatively, brokers are detached to negotiate terms that benefit them, preferably than their customers, providing they are providing murder in line with domestic standards set by the National Best Bid and Offer ( NBBO ). The miss of competition on price, skeptics suggest, is badly for the consumer. ( It ‘s deserving noting that because market makers immediately receive so much trading volume, the NBBO ‘s pricing is arguably untrustworthy and out-of-kilter with reality. )
second, PFOF heretics believe its implementation is much unevenly shared. There are no rules around what percentage of payments brokers like Robinhood are permitted to take. An SEC probe indicated that Robinhood traditionally took 80 % share, with precisely 20 % of the remaining payment passed down as price improvement. Some will argue then that preferably than giving customers a better deal, PFOF ensures they ’ re paying a agio on what could be procured.
ultimately, despite appearing to save users money, PFOF may be more expensive than alternatives. Again, the SEC provided insight here :

For most orders of more than 100 shares, the analysis concluded that Robinhood customers would be better off trading at another broker-dealer because the additional price improvement that such orders would receive at other broker-dealers would likely exceed the approximately $5 per-order commission costs that those broker-dealers were then charging.

The analysis further determined that the larger the order, the more significant the price improvement losses for Robinhood customers—for orders over 500 shares, the average Robinhood customer order lost over $15 in price improvement compared to Robinhood’s competitors, with that comparative loss rising to more than $23 per order for orders over 2,000 shares. 

The consequence is that PFOF — at least when practiced by Robinhood — costs consumers money, particularly with larger orders .

What behavior does it incentivize? 

The measure of the PFOF inventory Robinhood offers is a routine of two things : the phone number of active users and the average “ randomness ” of their trades.
noise is a routine of both volume ( number of trades ) and stylus of trade. In general, Robinhood wants as many aggressive, high book traders who are trading in basically random patterns as it can get.
Why ? Because these types of traders are probably to get good, brassy performance from a PFOF model like Robinhood ’ second, but are besides unlikely to be motivated by the factors that we traditionally think of as motivating investors. Like those that play fast and unaffixed in the crypto markets or study sports books, these day traders are attracted to skew.
This raises an awkward motion : is Robinhood ’ s model built on bad investors ? Is this a gambling app disguised as an investment brokerage house ? Robinhood has come under fire in the by for gamifying bad behavior, with its practice of confetti and “ scratch menu ” games. The S-1 seems to be at pains to emphasize this is not the commercialize the party likes to think of itself as serving. The confetti is gone, replaced by “ newfangled ocular experiences, ” while elsewhere Robinhood notes that “ our platform is enabling our customers to become long-run investors. ”
Is that genuine ?
Account growth and ARPU numbers cut through the spin. In late-2019, DAUs showed little growth, while by mid-2020, they had doubled. With the pandemic shutter traditional outlets, skew-seekers flocked to brokerages like Robinhood to sate their risk-taking activities. ARPU rose 65 % from Q4 2019 to Q4 2020.
At least over the by two years, Robinhood ’ sulfur business does seem particularly tied to those seeking a specific kind of high-payoff risk. With that in mind, the business starts to look a small different, with future growth in ARPU and EBIT levered to attracting this kind of customer.
Of course, that doesn ’ t have to be the goal state of the party. Gold ’ s subscription offer may continue to grow, and expanded neobank offerings may pave the way to earn net pastime income .

Management: Vlad the App-scaler

In the course of researching this piece, we had the luck to speak to sources with first-hand cognition of Robinhood ’ second management team and inside workings. We ’ ll report the senior leadership, Tenev and Bhatt ’ randomness leadership styles, and cultural challenges .

Senior leadership

Robinhood ’ s current management team reflects its identity as function fiscal firm and part technical school startup. Wall Street and Silicon Valley horsepower is in set to lead its next phase of growth.
Key personnel include :

• Aparna Chennapragada, Chief Product Officer since April 2021. Prior to joining Robinhood, Chennapragada spent 12 years at Google leading product, engineering and design teams. 
• Daniel Gallagher, Chief Legal Officer since May 2020. Before joining Robinhood, Gallagher was a Partner and the Deputy Chair of the Securities Department at Wilmer Cutler Pickering Hale and Dorr LLP from 2019 to 2020. In addition, he served as a Commissioner of the SEC from 2011 to 2015.
• Gretchen Howard joined as Vice President of Operations from January 2019 and was promoted to Chief Operating Officer six months later in June 2019. Before joining Robinhood, Howard was a Partner with CapitalG, Alphabet’s Growth Equity fund from 2014 to 2019 and held several positions at Google prior to that role.
• Christina Smedley, Chief Marketing and Communications Officer since September 2020. Before joining Robinhood, Smedley was most recently Vice President at Facebook from 2015 to 2020, where she worked with the Messenger, Diem (previously known as Libra) and Novi teams. Smedley joined Facebook from PayPal where she was Vice President of Brand and Communications from 2012 to 2015. 
• Jason Warnick, Chief Financial Officer since December 2018. Prior to joining Robinhood, Warnick spent 20 years at Amazon where he held a variety of finance, strategy and compliance leadership positions including VP of finance and chief of staff to Amazon’s CFO.

Vlad and Baiju

For most of Robinhood ’ mho life, Vlad Tenev and Baiju Bhatt have served as co-CEOs. however, the company has relied on the couple differently, at different phases of adulthood.
According to a early employee, Bhatt was the “ major ” CEO early in Robinhood ’ mho life. As his current claim of Chief Creative Officer suggests, he has a bang-up aesthetic sense, which can be seen in Robinhood ’ second elegant intersection. While well-suited to building in “ 0 to 1 ” environments, Bhatt ’ s step back can be seen as recognition that he may be less well-suited to running a mature occupation. ( incidentally, he is obviously a true trading obsessive, mentioning to one of our analysts that he dislikes ETFs, and couldn ’ thymine understand why person would n’t choose to buy specific securities. )
scale may be where Tenev shines. The ex-Robinhood employee described Tenev as both detail-oriented and visionary. He is apparently excellent at driving effective product and engineer growth while keeping an eye on the bigger mental picture opportunities. Since stepping into the driver ’ s seat twelve months ago, he ’ south managed to reduce downtime despite extraordinary growth.
That does not mean he, and the team, are not without weaknesses. As you might guess from the GME odds and ends, communication is not a potent point. That ’ s said to be truthful both externally and internally. furthermore, the former employee suggested Tenev can dither when it comes to driving the executive team to a decision.
last, the team has shown a questionable ability to see around corners. Should Robinhood have been better prepare for the kind of meltdown it endured in January ? On one hand, what unfolded seemed like a true tail-end event. On the other, Robinhood has grappled with outages and uncoerced communication errors in the by. It possibly should have been better attuned to electric potential risks and had a clear playbook .

Cultural challenges

By and large, Robinhood seems to be a place people like to work. The company received 4.4 stars on Glassdoor and Bhatt and Tenev secured an 88 % approval rat.
Data from Glassdoor yet, Robinhood faces cultural challenges by dint of its public perception.
Though Robinhood began as the scrappy foreigner, it now feels about like an incumbent. In 2019, Bhatt noted that one of the original motivate factors was to bring in “ disenfranchised ” millennials that were “ frustrated … with the way that the system worked. ” Does that sell still work ? Rather than breaking down the system, increasingly, Robinhood is the system.
Being upbraided in battlefront of congress may merely fortify some employee misgivings, at a clock when the party not only needs to retain its lead endowment but recruit. so far, Robinhood does not seem to have suffered from a mass exodus ; as they expand into fresh intersection lines, they will need to keep rent .

Investors: Snoop scoop

Over the course of Robinhood ’ s multiple financing rounds and ~ $ 5.74 billion in entire equity raised to-date they ’ ve attracted many of the most storied names in guess to their ceiling board, including Andreesen Horowitz, Sequoia, Kleiner Perkins and Google Ventures.
You ’ ll besides find more storm names like Snoop Dogg, Jared Leto and Nas as early investors vitamin a well. As the story goes, Box CEO Aaron Levie introduced Jared Leto to Tenev, who subsequently brought Snoop along for the ride.
Per the S-1, the investors with the largest ownership are DST Global, Index, NEA, and Ribbit Capital, who are all listed as > 5 % stakeholders .Robinhood’s S-1 Something particularly alone about this offer, but aligned with their deputation of “ democratizing finance for all, ” is that Robinhood is reserving 20-35 % of the shares for its customers at the IPO price. This looks like a brainy market move. not only should it drive new sign-ups and reactive dormant accounts, but it allows the company ’ s users to profit from a toss off.

Financial highlights: On a tear

Whatever one ’ randomness stead on Robinhood ’ randomness controversies, it ’ south fiscal results are undoubtedly impressive. A few high-level figures from 2020 :

• Revenue. The company earned $959 million, up 245% year-over-year (YoY). 
• Users. Net cumulative funded accounts reached 12.5 million, up 145% YoY. 

That ardent pace has alone accelerated. Let ’ s look under the $ HOOD .

Revenue 

As noted earlier, the majority of Robinhood ’ s tax income comes via transactions, across equity, options, and crypto trade. This brought in $ 720 million in 2020, while final matter to gross supplied $ 177 million. “ early revenues, ” which chiefly consists of Robinhood Gold subscriptions, brought in $ 61 million.
Robinhood’s S-1 tax income has continued to grow in holocene quarters. indeed, Robinhood reported $ 522 million in the three months ending March 31, up 309 % YoY. Over time, tax income mix has shifted towards transaction-based, with this line driving 80 % of tax income last quarter. Across this transaction-based gross, the majority is generated via options, an true controversial even highly lucrative gross pour across the brokerage house landscape.
Crypto has besides been a meaningful subscriber in late months. Robinhood had 9.5 million users trading crypto in 1Q21, driving $ 81 million. This represented 17 % of tax income. interestingly, Robinhood is not making about vitamin a much from crypto trade as Coinbase. Despite boasting over 3.4 million more monthly transact users, Robinhood manages just 10 % of Coinbase ’ s take rate on crypto transactions.
It ’ randomness worth wondering whether this is sustainable. Thirty four percentage of Q1 ’ s crypto gross came from Dogecoin, equating to a whopping 6 % of total revenues. Should Robinhood bank on uncomplicated YOLO-trading going forward ? For the time being, the company is improbable to mind .

Users

Given the company ’ sulfur addiction on an actively engaged audience to generate transaction-based tax income, net funded accounts is an specially consequential KPIs.
For the three months ended March 31, 2021, Robinhood claimed 18 million net Cumulative Funded Accounts, compared to 7.2 million a year earlier. That represented a 151 % growth rate.
Robinhood’s S-1 Where is this emergence coming from ?
today, the majority of newly customers arrive organically or through the Robinhood Referral Program. Related organic channels were responsible for over 80 % of new Funded Accounts in 2020 and Q1 2021. This has depressed Robinhood ’ second CAC and payback period. The latter dropped from 13 months in 2019 to less than 5 months in 2020. Such a significant improvement speaks to the company ’ mho market efficiency and brand momentum .

Expanding cohorts

Looking beyond growth in new accounts, Robinhood has grown tax income by increasing net deposits per cohort and its suite of products. As the chart below illustrates, Robinhood ’ s annual cohorts expand over fourth dimension.
Robinhood’s S-1 That ’ s led to impressive net gross expansion on a exploiter basis, generating $ 137 in ARPU. That makes Robinhood 3x more lucrative than Facebook per user.
That ’ second contributed to an impressive come of assets under custody ( AUC ). today, Robinhood commands $ 81 billion in AUC, 3x the GDP of Iceland .

Gross margins

Robinhood is an efficient commercial enterprise at scale. On an adjusted basis, they are an 85-90 % gross margin business, with the main costs coming from clearing and executing trades. due to increased transaction volume, Robinhood hit $ 155M of EBITDA for the wide class 2020 and achieved $ 115M of Adjusted EBITDA in 1Q21. If retail investor engagement continues to stay strong, then Robinhood should be able to continue to hit impregnable profitableness and margin numbers .Robinhood’s S-1 It ’ s worth mentioning that Robinhood did have a $ 1.4B loss in 1Q21. This came from a erstwhile blame related to the hand brake convertible notes raised to cover the capital deficit from the GME mess .

Competition: Trading places

As with most disruptive businesses, Robinhood faces competitive threats from above, below, and beyond their batch lines. If the company is to justify its prize and appreciate, it will need to fend off the advances of traditional brokers, neobrokers, full-suite fintechs, and entertainment offerings.

Traditional finance

The honest-to-god guard will not go down without a fight. Companies like Schwab, Vanguard, Interactive Brokers, and ETrade represent the incumbency, and it ‘s possible that they act in such a manner that Robinhood ’ south growth is curtailed. recent years have seen attempts with institutions like Schwab changing their model to offer commission-free trade.
While that allowed Schwab to eat TD Ameritrade ’ south lunch, and then acquire them, it hasn ’ thyroxine seemed to hamper Robinhood at all. Though providing commission parity bit, these older businesses have a long direction to go before they match Robinhood ’ s design or intuitive functionality .

Neobrokers

Energized by Robinhood ’ s success, a genesis of insurgents have taken to the commercialize over holocene years. This includes neobrokers like Webull and Public. The erstwhile has raised $ 238 million, while the latter has pulled in $ 308.5 million.
Each offers a different spin on the retail investing phenomenon. Webull orients itself towards sophisticated traders, providing more building complex graph, among early features. Public, meanwhile, leans into social functionality, allows investors to follow favorite personalities and converse with others.
Public may be a particular menace for this reason. While it ’ mho easy to imagine Robinhood adding more functionality for power-uses, tacking on a social graph would be no easy feat, requiring a product revamp and expansive temperance system. Over time, Public ’ s social network effects may provide a defensibility Robinhood lacks.
Beyond these neobrokers, Robinhood competes with crypto exchanges. Though a secondary occupation note, companies like Coinbase, EToro, Kraken, Gemini, and many others will hope to snipe Robinhood ’ randomness users in the long run .

Full-suite fintech 

possibly the biggest threat to Robinhood ? Square ’ s Cash App.
Leveraging its position as a democratic peer-to-peer payment service, Cash has rolled out zero-commission standard trading deoxyadenosine monophosphate good as bitcoin purchases. Jack Dorsey ’ s company will hope that it can efficaciously front-run Robinhood ’ s user skill, drawing consumers in with payments, then converting them into investors.
other fintech companies are taking a alike border on, bundling trade into a fuller suite product. This includes players like SoFi and M1 Finance. Robinhood will hope it can move into its counter-parties ’ district faster than it is encroached upon .

Entertainment

Robinhood doesn ’ t good compete with fiscal businesses. As celebrated earlier, the caller ’ mho growth is dependent on how many risk-seekers it can attract. It competes for those users across verticals, battling sports gamble and early games of opportunity.
During the pandemic, millions of people jumped into the app because they had lost access to other “ bad ” activities : sports gambling shut down with professional leagues and casinos closed. It ’ sulfur no coincidence that lockdown brought Robinhood ’ mho strongest period of account growth.
Will growth continue when craps tables have blossomed afresh ? Will Robinhood maintain its pace when you can bet on ol ’ Glory Vase devour at the tracks ?
The number of people who have a very strong hazard appetite ( and the means to exercise it ) is finite, specially if Robinhood doesn ’ deoxythymidine monophosphate expand geographically. Given the caller has racked up 18 million accounts, it ’ s improbable they ’ ve tapped out equitable so far.
still, more than Charles Schwab, Robinhood may find itself threatened in the long function by companies like DraftKings, MGM ( via IAC ), and Penn National Gaming .

Growth path: Stretching boundaries

What will Robinhood look like in five years time ? Will we still think of it primarily as a brokerage ? Or will it have taken on the definition of a fiscal extremely app ?
Though the caller has its hands full at the here and now, leadership is surely planning its future. Reports suggest intersection and technology is firing on all cylinders, giving the occupation the confidence to look foster afield ( and avoid the snafu of Cash Management ’ s roll-out ).
Three directions Robinhood could expand :

1. Geographically 
2. Functionally 
3. Internally 

First off, Robinhood could choose to expand beyond the US. This would be far from a fiddling task, given each market poses its own regulative challenges. The UK, for example, doesn ’ thyroxine permit PFOF. That might force Robinhood to do away with a commission-free model.
That appears to have proven effective for companies like Trade Republic. The “ Robinhood of Europe ” has raised more than $ 900 million and is valued at $ 5.3 billion, and charges €1 per trade.
If Robinhood wants to avoid international complications, it might choose to expand its functionality. Just as neobanks like Nubank have succeeded by starting with one high-usage merchandise, then layering on higher-margin clientele lines, Robinhood may choose to do the lapp. Though it feels like a merchandise challenge given stream customer custom, in time, Robinhood may provide lend, indemnity, and credit products. This feels like a healthy move as Cash Management has seen solid consumption, with roughly ~20 % of users taking advantage of the product.
finally, Robinhood may choose to build inwards. specifically, Robinhood could, over time, take on the function of market makers, internalizing orders. Though surely a functional expansion, the customer experience would remain largely unchanged, though a big deal would have shifted behind-the-scenes .

Valuation: Built for a breakout?

It ’ s not unusual for companies to view IPOs as crucial marketing events. It is unusual for a company to use its populace market debut as a market campaign to the extent Robinhood has.
As mentioned, Robinhood is offering users direct access to its IPO. This all but guarantees significant iron coverage and increased traffic. It besides establishes alone incentives for Robinhood to underprice the IPO and generate a big pop.
Mechanics away, the IPO is expected to price at around $ 40 billion, valuing the company at ~19x it ’ s 1Q tend rate tax income and ~41x 2020 tax income. This would besides mark a 3.5x increase in evaluation from Robinhood ’ s last priced orotund of financing ( a $ 668 million Series G at an $ 11.2 billion post-money back in October 2020 ). Though, as we know, the company raised a boatload of cash via a structure convertible note in January in the midst of its GME meltdown.
Is this cheap, or expensive ? We can get a better sense by referring to alike businesses. In particular Coinbase, Interactive Brokers, and SoFi represent valuable populace comprehensive examination. Though however to hit the public markets, EToro and Apex Clearing are preparing to list, and represent useful benchmarks. last, two critical acquisitions give us some utilitarian figures : Charles Schwab finalized a $ 22 billion learning of TD Ameritrade in 2020, while Morgan Stanley picked up ETrade for the same class.
Let ’ s spirit at tax income multiples across these companies :From company filings and contemporary news sources Though not far off of Coinbase ’ mho 2020 tax income multiple, Robinhood stands out everywhere else. That may be in function justified by the company ’ s growth rate. As celebrated, its most recent quarter saw it post results up more than 300 % from the class anterior. That ’ s not quite Coinbase flush ( 3x QoQ ), but surely puts it in a very elite company.
furthermore, Robinhood is operating a lot more productively than most hypergrowth businesses. In 2020, the company ’ s Adjusted EBITDA, which excludes erstwhile costs like legal settlements and convertible notes, stood at $ 155 million. last quarter, Adjusted EBITDA reached $ 115 million, a run rate of $ 460 million.
It ’ sulfur not often you see a clientele posting these kinds of numbers, and though the evaluation may look a little rich, we wouldn ’ triiodothyronine bet against a pop music to somewhere close to $ 70 billion .

Regulation: Meme collateral

arguably, the alone space more baffle than fiscal services is consumer fiscal services. People care about their wallets and so do their elected representatives. That means that by default option, Robinhood attracts scrutiny.
even so, the company had not precisely done a big job of staying under the radar. It ’ second starring function in the GME shenanigans and across-the-board cultural office has lone sharpened regulators ’ focus. That ’ randomness part of the cause why a broker that doesn ’ metric ton get cheeseparing to cracking the top ten by AUC has been dragged in front of Congress, had its CEO ’ s phone seized by federal prosecutors, and been hit with the biggest ever FINRA fine, all within the best six months of its history. This is the collateral damage that comes with being the home of meme finance.
What does any of this actually mean for the company and its shareholders ? A summation of Robinhood ’ s likely issues suggest not much.

• Fines. These are essentially immaterial. Seventy million dollars is a rounding error to a company of Robinhood’s scale. 
• Capital requirements. Higher capital requirements (like those imposed on Wells Fargo) will have little impact now that Robinhood is a public company with functionally unlimited access to capital. 
• Bad press. Though it might affect the company’s recruiting to a certain extent, added attention is likely to drive sign-ups. Robinhood’s account numbers certainly didn’t seem hampered by recent dalliances with legislators. 
• PFOF. Robinhood’s PFOF counter-parties are already paying a premium to execute the company’s trades; scrutiny and hearings is likely to do little to quell their interest. That position is bolstered by the knowledge that major regulatory action against PFOF is probably impossible because of the potential ripple effects throughout the capital markets. Even proposals to tax financial transactions would only hurt Robinhood insofar as they are counter-parties for high frequency traders. 

This all begs the question, where is RH actually weak or vulnerable ?
The biggest standouts here are KYC/AML ( Know Your Customer and Anti-Money Laundering laws ) and Robinhood ’ s fiduciary duty. Robinhood is presently under investigation on multiple fronts, including from the Secret Service for allegedly allowing criminals to open accounts with deceitful credentials ( like dead peoples ’ SSNs ) as separate of money wash schemes. If Robinhood isn ’ t by rights vetting new report openings, it could quickly drown in alphabet soup. The OCC, FinCEN, and others have the might to levy massive fines and impose business-killing restrictions. For that to happen, Robinhood would have to be unwittingly serving as a bank for terrorists or drug traffickers — a farfetched sound suggestion, at the moment.
secondarily, slow-moving actions are coming together in a few states ( most notably MA ) which would bar Robinhood from operating on the grounds that it fails to serve the best interests of its customers. Though these look improbable to succeed at the moment, prevail here would have profound impacts on Robinhood, forcing the company to pursue a unlike model.
If these scenarios sound farfetched, that ’ south because they probably are. There ’ south enough momentum and capital behind the company that it will about surely settle-without-admitting-guilt their way out of its troubles for years to come and without major changes to Robinhood ’ second business or operations. But the simpleton fact that multiple federal and state prosecutors and regulators are investigating the caller simultaneously with no signs of slowing down is worrying on its own. even if users are distillery signing up, investigations and litigation will inescapably take a price if only in the form of distracting management .

Why now?

The clock of Robinhood ’ mho IPO is a reflection of recent successes and failures.
As we ’ ve noted, covid proved a bless for brokerages, with Robinhood a particular benefactive role. The company ’ second emergence has been extraordinary. low interest rates, an up-and-to-the-right market environment, and a wave of stimulation capital seaport ’ thymine hurt either.
The class ’ randomness agitation has besides influenced the company ’ second timeline. For much of 2021, Robinhood had its hands fully, first dealing with violent swings in traffic, then handling the GME side effect. With Tenev ’ randomness earshot behind them, and the fury burned off slightly, the party distinctly find convinced about making this next pace.
What will come future ? Despite reopening acting as a retardant, we expect 2Q21 numbers to be impressive. beyond that, who knows. Robinhood ’ s party seems like it ‘s just getting started.

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* See important disclaimer * * The goal of The Generalist ’ s “ multiplayer ” pieces like this one is to bring different ideas into discussion. In that spirit, please note that some analysts have invested in Robinhood. Others may have invested or supported competitors. As always, nothing written should be construed as investing advice.

source : https://vesnice.net
Category : Finance