Daily Brief: Robinhood’s Going Public, And Its Revenue Is Exploding. Shame About Those Surging Losses…

Daily Brief: Robinhood’s Going Public, And Its Revenue Is Exploding. Shame About Those Surging Losses…

over 2 years ago3 mins

Robinhood doesn’t do things by the book: the trading app revealed both surging revenues and losses late last week ahead of its much-anticipated initial public offering (IPO).

What does this mean?

New retail investors flocked to Robinhood last year, pushing its first-quarter revenue 300% higher and its monthly active users to 18 million – twice as many as the same time the year before. That was mostly down to an explosion in cryptocurrency trading, which made up 17% of Robinhood’s first-quarter revenue.

But things weren’t all hunky dory. A lot of the crypto revenue was from less-than-reliable dogecoin trading – the joke cryptocurrency that’s now down by more than 65% from its May highs. Likewise, the company carried out some emergency fundraising amid the “meme stock frenzy”, which led to an extraordinary $1.4 billion loss in the first quarter.

Sales vs expenses

Why should I care?

For markets: New versus old.

Robinhood’s revenue has surged almost fourfold to $1.3 billion in the last four quarters – a growth trajectory that could see its revenue hit $5 billion over the next four. With its IPO rumored to value the firm as much as $40 billion, that’d imply a valuation multiple of 8x forecasted sales. That’s not outlandish, especially considering it’s not far off that of brokerage Charles Schwab’s. But there is one big difference between the two: the bulk of Robinhood’s revenue comes from selling its customer’s orders to so-called market makers in a practice known as “payment for order flow” – one that’s increasingly at risk of regulatory clampdown.

The bigger picture: South Korea steps up.

This listing would give America’s record-setting IPO market another shot in the arm. But South Korea is giving the country a run for its money: Kakao Pay – the country’s biggest online payment provider – filed for a listing that could raise the fintech company as much as $1.4 billion. And that comes hot on the heels of blockbuster IPO filings from fellow Korean fintech Kakao Bank, as well as video game maker Krafton.

SPAC boom sees 2021 touch new IPO record

Keep reading for our next story...

850,000 More Jobs For America

Jobs image

Data out on Friday showed the US economy was topped up with a more-than-expected 850,000 jobs in June – the biggest gain in 10 months.

What does this mean?

It’s true that the unemployment rate unexpectedly ticked up last month. But the US economy is benefiting from both the lifting of restrictions and a successful vaccination program, not to mention trillions of dollars in economy-boosting measures from the country’s government and central bank. The data also suggests restaurants and bars are starting to have more success recruiting workers to keep up with the reopening of the economy. That might have something to do with the higher wages they’re offering to attract new hires, with Friday’s data showing a 2.3% increase in average hourly earnings in the leisure and hospitality industry versus the month before.

Going back to work

Why should I care?

For markets: Bad news is good news.

Investors were happy about the jobs report on Friday for two main reasons. For starters, the report showed an easing in the labor market shortage that’s been holding back the jobs market in the last few months. And second, there are still almost 7 million fewer jobs in the US economy than there were before the pandemic. That doesn’t sound great, sure, but as long as the US central bank is contending with low employment, it’ll keep propping up markets with low interest rates.

Change since January 2020
Source: The Wall Street Journal

Zooming out: Eat the rich.

Companies aren’t just dealing with higher wage costs, they’re now potentially facing higher taxes too: 130 countries just signed up to the tax agreement first reached last month by the world’s seven leading developed nations. The historic agreement will force the biggest companies – including Big Tech – to pay at least $100 billion a year more in taxes, with a lot more going to the countries where they actually do business instead of where they’re based.

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