Robinhood stock slumps 3% as investors await Sam Bankman-Fried’s next move.
A day after a big rally on hope for a big deal, investors in the struggling stock await the next moves from the brokerage and crypto billionaire Sam Bankman-Fried.
Robinhood Markets (HOOD) stock is slumping today as investors await crypto billionaire Sam Bankman-Fried’s next move, after a big rally Monday on a report he was eyeing a takeover.
The stock surged 21.5% late in the trading session after Bloomberg News reported that Bankman-Fried was exploring a possible acquisition of Robinhood, but he later said no active talks with the company were going on. The stock gave some of that back today, but it’s down only 2.8%.
Speculation has been ongoing since it was revealed in May that Bankman-Fried had taken a big stake in Robinhood. The possibility of a takeover at the time drove the stock higher by 30%. This likely won’t be the last we hear about a possible buyout or merger of some sorts.
Robinhood’s losing active users, revenue and market cap
The pioneer of commission-free trading has been struggling to prove itself as a public company, following its meteoric rise in popularity among younger retail investors. The company has lost more than three quarters of its value since its initial public offering in July of last year. The stock is also down nearly 90% from its previous high, which it hit in the days after it began trading as a public company. This has made the company a good takeover target.
Still, Robinhood has an impressive number of customers. The company said in April during its first quarter earnings release that it had 22.8 million funded accounts, up from 18 million as of the same time last year and 9.8 million in the second quarter of 2020. The issue is in the engagement of those accounts.
Robinhood’s monthly active users (MAUs) declined 10% to 15.9 million in the first quarter of 2022. This is down from the 17.7 million in the first quarter of 2021 and a far cry from the 21.3 million MAUs Robinhood reported in the second quarter of 2021, following the meme rally that drove a spike in both account signups and trading volumes.
The drop-off in MAUs is resulting in shrinking revenues, which the company saw decline 43% year over year to $299 million in this year’s first quarter. Transaction-based revenues fell 48% year over year to $218 million for the quarter, driven by fewer customers trading and lower trading amounts.
Younger traders who haven’t participated in a bear market before are obviously trading less, and it’s showing in Robinhood’s numbers. The company’s transaction-based revenues for options, equities and cryptocurrencies all fell by more than 35% in the quarter. Crypto activity came down the most.
“We face a challenging macro environment, one most of our customers have never experienced in their lifetimes,” said Tenev during the earnings call.
Meanwhile, Robinhood is continuing to invest heavily in its crypto business, despite the ongoing crypto market crash that’s wiped out roughly $2 trillion in value since November 2021. This is where it might intersect with Bankman-Fried’s FTX exchange. Robinhood recently rolled out its Crypto Wallets, added new coins to its available securities and entered into an agreement to acquire the UK-based crypto platform Ziglu for $170 million.
So would Robinhood actually consider a buyout?
Tenev said during April’s earnings call that the company is going to remain focused on building for the long term. Robinhood ended the first quarter of 2022 with $10.6 billion in cash, roughly $3 billion more than the company’s current market cap. That alone tells you the owners will likely never sell during a bear market.
Sam Bankman-Fried a crypto-rescuer?
Sam Bankman-Fried disclosed in May that a company he controls, Emergent Fidelity Technologies, bought a 7.6% stake in Robinhood. He paid roughly $648.3 million for the shares. But an outright takeover isn’t likely.
Robinhood’s cofounders, CEO Vlad Tenev and Chief Creative Officer Baiju Bhatt, control more than 50% of Robinhood’s voting power, according to the company’s most recent quarterly report. Robinhood founders hold all the outstanding Class B shares, which have 10 votes each, making it difficult for Bankman-Fried’s FTX or any outside party to take it over without winning the founders to their side.
But it doesn’t mean some sort of alliance or further investment isn’t possible.
Last week, Bankman-Fried’s FTX agreed to provide credit to crypto exchange BlockFi, following reports of big losses and an announcement that the company would lay off 20% of its staff. BlockFi signed a deal with FTX to secure a $250 million revolving line of credit.
“We take our duty seriously to protect the digital asset ecosystem and its customers,” Bankman-Fried tweeted.
This came a week after crypto platform Voyager Digital said Alameda Research, Bankman-Fried’s quantitative research firm, would provide it with a $200-million cash credit line and a second revolving credit line for 15,000 in Bitcoin (BTC).
Robinhood isn’t a struggling cryptocurrency platform, of course, but it’s undoubtedly been stung by falling stock and crypto values. If a deal is in the works, Bankman-Fried would likely need to court the founders, not take them over.
What’s next for Bankman-Fried?
This isn’t the first report suggesting a potential Robinhood buyout by Bankman-Fried. Where there’s smoke, there’s often fire. So this may not be the last we hear about an acquisition.
And while Robinhood investors today are reacting to Bankman-Fried’s dismissal of the rumor, what he actually said was FTX wasn’t in active talks with Robinhood, not that internal discussions at FTX weren’t happening.
“We are excited about Robinhood’s business prospects and potential ways we could partner with them,” Bankman-Fried said Monday in an emailed statement. “That being said, there are no active M&A conversations with Robinhood.”
With Robinhood stock down nearly 90% from its highs, investors will be waiting eagerly for something — or someone — to save their stock.
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