Commentary Aug 04, 2022 at 07:44 AM Share & Print
What You Need to Know
- The possibility that Robinhood might be open to a sale was raised during the company’s second-quarter earnings call.
- The call occurred the day after Robinhood announced it was dismissing 23% of its staff, about 780 people.
- Nexus Strategy’s Timothy Welsh indicated he didn’t see a high likelihood that Schwab or FTX would buy the investing app.
Robinhood Markets CEO Vlad Tenev brushed off the notion this week that the investing app would put itself on the market and indicated the company would be more interested in making its own acquisitions.
Tenev, who co-founded the commission-free brokerage, fielded a question from a participant on the company’s second-quarter earnings call Wednesday about the possibility that Robinhood would sell. The call occurred the day after Robinhood announced it was dismissing 23% of its staff, amounting to about 780 people.
“So any word on being acquired by FTX or Charles Schwab?” a participant identified as Paul W. asked via Robinhood’s investor relations chief, Chris Koegel, according to a transcript posted on The Motley Fool.
“So in one word, no. I think we’re in a great position as a stand-alone company,” Tenev responded.
“I love us as a stand-alone company,” he added. “We’ve got a strong balance sheet. We’ve got an awesome team and we’re delivering on our product road map, as I mentioned, at a pace that we haven’t seen before. So actually, I’d flip it on the other side.
“We actually see opportunities particularly in this market environment to leverage the balance sheet that we have, that’s about $6 billion to acquire companies that can help us accelerate our road map. So we continue to be on the lookout there. And we remain really excited by the opportunity we see ahead of us,” Tenev said.
Robinhood had 14 million active users, $64 billion in assets under custody and 22.9 million net cumulative funded accounts as of June 30, according to its website. The company posted a 44% year-over-year decrease in revenue for the second quarter.
In a blog post on Tuesday about the staff dismissals and a company reorganization, which followed the announcement of a 9% staff reduction earlier this year that “did not go far enough,” Tenev cited “additional deterioration of the macro environment, with inflation at 40-year highs accompanied by a broad crypto market crash. This has further reduced customer trading activity and assets under custody.”
Bloomberg, citing sources familiar with the matter, reported in late June that the FTX crypto exchange founded by Sam Bankman-Fried was looking into whether it could acquire Robinhood.
In May, Bankman-Fried disclosed that a company he owns had taken a 7.6% position in Robinhood, but CNBC, in reporting on Tenev’s comments yesterday, noted that Bankman-Fried in the meantime has said that FTX isn’t interested in buying the investment firm.
Tenev and Robinhood’s other co-founder control a majority of the brokerage firm’s voting shares, according to Bloomberg.
The Industry Weighs In
“It is our policy not to comment on market rumors or speculation,” a Schwab spokeswoman told via email. FTX didn’t immediately respond to an email seeking comment.
Timothy Welsh, Nexus Strategy LLC president, CEO and founder, indicated he didn’t see a high likelihood that Schwab or FTX would buy Robinhood.
“I think it’s almost a zero chance that Schwab would do it because they’re in the middle of digesting TD Ameritrade,” he told us today. “Maybe down the road,” but Schwab doesn’t have the bandwidth for another big deal now, he added.
As for FTX, the question is whether they want it, according to Welsh. He said it would be challenging to take on a big deal with an inordinate amount of assets and accounts to manage, and noted that users can go elsewhere when companies merge.
“It’s a challenging brokerage environment,” he said. “There’s a lot of risk involved in discount brokerage these days.”
Revenue streams are more challenging without commissions, and companies like Robinhood rely on the payment for order flow business model, which the Securities and Exchange Commission and other regulators are looking at as potentially unfriendly to consumers, Welsh said.
“The discount brokerage world is highly competitive” and therefore there’s not much room to squeeze basis points, he added. In addition, Robinhood attracts mostly small investors, he said. “High net worth investors are not at Robinhood,” Welsh said in a phone interview.