Robinhood stock surges 30%; is a takeover brewing?
The online broker’s struggling stock roared on news the billionaire behind FTX owns 7.6% of HOOD. Is a takeover in the works that could reward investors?
Shares of online brokerage Robinhood (HOOD) gained as much as 30% today, surging on news a crypto billionaire owns a 7.6% stake in the company.
But if you bought in at Robinhood’s IPO price just last July, you’re still way under water. But the revelation opens up some intriguing possibilities for investors, including a possible takeover.
A money loser so far
An SEC filing Thursday disclosed that FTX crypto exchange founder Sam Bankman-Fried paid about $643 million for his 56.3. million shares in Robinhood Markets through his investment firm. That works out to about $11.42 a share.
At yesterday’s close, that stake was worth roughly $481.9 million. At its high of $10.83 today, it’s worth $609.7 million.
While it’s still a losing position, consider that those who bought in at the IPO price of $38 a share are looking at a loss of 71%. (We won’t talk about those who bought at the peak above $70.)
(For a complete report on Robinhood stock, see our dedicated guide.)
Still, is the stock a buy at the current price, or at least a hold?
Founded in 2014, Robinhood is widely credited with introducing millions of investors to the market and fueling the industry’s move to no-fee trading.
But it’s been criticized for gamelike features that encouraged excessive trading, and took heat from users for restrictions it briefly placed on some trading during last year’s meme stock craze.
At its IPO it was growing rapidly. According to CNBC, it listed 18 million clients as of March 2020, up 151% in a year.
But by all reports, it’s now struggling. At its last earnings report, it disclosed that usage was down in the first quarter from the first quarter of 2021, with revenue for that period down 43%. Robinhood laid off 9% of its employees last month.
That has led to speculation that Robinhood could be a takeover target, which makes the Bankman-Fried investment intriguing. The form filed with the SEC suggests he plans to take an active role or even take control, the Wall Street Journal notes.
So is the stock a buy?
Robinhood stock would have to be a buy for the future, and it’s hard to evaluate based on current numbers. There are no earnings since it loses money, and it has missed estimates in each of the last four quarters.
Analyst forecasts still put the stock price above $13 within a year, but the average recommendation is hold.
Nothing fundamentally has changed in the numbers since yesterday to fuel today’s move.
The wild card is the possibility of a takeover or partnership with FTX. The crypto exchange isn’t public, but reports based on a recent funding round put its value at $32 billion. Robinhood’s current market cap stands at $9.3 billion.
But until Bankman-Fried reveals any plans, though, this is just an endorsement for HOOD from a billionaire.
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