In less than a decade, Robinhood has become a major player in the financial markets through its no-commission model and its intuitive app design which turned trading into more of a mobile game. Now, the company is taking the next step as it looks to become a public company and is expected to fetch a valuation of $40 billion.
Robinhood was founded in 2013 by Stanford roommates Vlad Tenev and Baiju Bhatt, and it's become one of the largest and most successful fintech companies of the past decade. The company was started at a time when interest in financial markets had declined due to the Great Recession with retail interest in the markets at lows based on funds. However, the company was able to correctly anticipate that this would change, and it was able to capitalize with its app.
While the company has been remarkably successful in terms of its growth, it's also generated scrutiny from lawmakers as the company was forced to curb trading in some stocks. Some of the areas that are being probed are its selling of customer order flow, aggressive marketing, the app's design, and the ability of traders to use leverage or trade options.
Earlier in the week, Robinhood agreed to pay a $70 million fine to settle with U.S. financial regulators who accused it of failing to vet customers and implement proper risk controls. However, it remains embroiled in other investigations that pose a threat to the company.
Inside the Numbers
In Q1, 59% of Robinhood's revenue came from the selling of order flow to market markers. In total, it earned $959 million in the quarter. In 2020, Robinhood generated a profit of $7 million which was a significant improvement over its $107 million loss in 2019.
Crypto was another growth area as it holds $12 billion in crypto assets which is 2,300% higher than a year ago. About 9.5 million customers traded $88 billion worth of cryptocurrency during Q1.
The company is also reserving about 20% to 35% of its shares which it plans to sell directly to its own customers through the Access feature which gives traders a chance to buy IPOs before they go public. So far, Robinhood has raised $5.5 billion and its last financing round in February valued the company at $30 billion.