Robinhood seeks $35 billion valuation in upcoming IPO

Myles Udland, Brian Sozzi, and Julie Hyman discuss Robinhood’s interest in seeking a market valuation as high as $35 billion ahead of its IPO debut and what Robinhood could experience in the market after it goes public.

Video Transcript

JULIE HYMAN: We begin, though, with Robinhood because we are getting more details now ahead of that company's public offering, which could come now very quickly, more details on the valuation that it is seeking, which could be upwards of $30 billion for the company.

The last time it raised money was last September before the world changed for it, before it saw a big boom in new users. And that was only about $11.7 billion, so now, obviously, seeing much higher than that. $38 to $42 per share, according to an amended prospectus, is what it is looking for, 55 million shares.

And they're going to raise as much as $2.3 billion, so not surprising here that we are looking at this kind of a size, which would be comparable with sort of an interactive brokers kind of size, guys, but just again reflects the enormous demand and enormous uptick we have seen in retail trading.

Myles, it's going to be very interesting to see what the demand is for the stock, but also, if the momentum can continue for them as a public company, yes, you're going to get things. Even if you don't get another meme stock sort of frenzy, you know, you tend to get things like that, that sort of spur enthusiasm. You just wonder how often those kind of things can happen.

MYLES UDLAND: Yeah, and I mean, I think, look, I think the question for Robinhood going forward is just going to be how do investors value the company? Is it valued as a fintech play? Is it valued as the next generation of stock trading? Or to your point, is it valued more the way an interactive brokers is?

Now, because of the size of the user base and because of the revenues they're bringing in, obviously, Robinhood is a very significant premium to its would be peers in the brokerage space. But how long that spread sustains itself, I think is going to be the real question for them as they begin their life as a public company.

And know just to double click on the valuation, we were just chatting in the break, the last time they raised money they were valued at $12 billion. But there's some data showing that there were secondary market sales. This is data which comes to us from Rainmaker Securities.

Secondary market private sales of Robinhood back in February, so right around the time of right after the meme trade and right when they raised that emergency capital, they got the margin call-- we don't have to go through all the T plus 2 nonsense there-- but that valued the company at $40 billion, so essentially, Robinhood looking to go public at the level at which its stock has traded in some secondary private market transactions.

And now it'll be part of the public markets, and there'll be more liquidity for that. I would guess, Sozzi, if you want to do the binary options guess on this, I would imagine the stock opens at a significant premium to the 38 to 42. But I'm not sure that the roadshow is going to see-- I'm not going to-- I'm not going to guess that we'll see, like, three increases in the range, right?

It feels like that $30, $35 billion is probably where the institutions that Robinhood is going to go meet with are comfortable buying the stock. I'm going to guess, though, that we get a little bit of a home game meme, if you will, when the thing starts trading.

BRIAN SOZZI: Yeah, I'm really-- I could see it very easily getting a pop on the first day. I get it. It's a buzzy name. It's a name a lot of people have become very familiar with this year. But I am wondering what is the trade off? I guess somewhat to Julie's question or point there, is this another Coinbase, where it pops on the first day and then it trades in lockstep, and in the case of Coinbase, trade in lockstep with cryptocurrency?

In the case of Robinhood, does it trade in lockstep with retail investor flows? Because those flows have weakened since the meme stock mania earlier in the year, which, arguably, is driving some of this high valuation that we were seeing on Robinhood here.

But also to another question, what is Robinhood? What is the next five years for this company? Are they the acquirer? Are they the role of play? Do they come out here and buy a company like SoFi and really become a financial destination for everything in your life? That is to be determined.

But you know, even at a $35 billion valuation, like we're seeing here in the beginning, maybe $32 billion we're seeing here this morning reported, their market cap is still well below, would be well below a Charles Schwab. Charles Schwab is a powerhouse in financial services. Its market cap right now is $130 billion.

MYLES UDLAND: Well, you want to say, you know, what-- hold on, I'm trying to Google this right now, because we've got $81 billion in assets under custody for Robinhood, right? So they're going to be valued at, let's call it, $40. So every billion that they have is going to be, apparently, worth $2 billion of market cap. The quick Google machine tells you that Charles Schwab has $600 billion in assets under management.

So you're not getting-- it's not a $1.2 trillion company, last time I checked, right? So these are very overly simplified how are you valuing this business, 18 million funded accounts, so every million funded accounts is $2 billion of market cap. That's the very quick and dirty math we're doing.

And it would seem that that's not going to be sustained for indefinitely, right? To your point about a Coinbase, the stock has come in significantly as investors view it maybe as a levered play on crypto, but just simply aren't going to assign the amount of enterprise value per user that we initially saw in those early stages.

And you kind of run the quick numbers here on Robinhood, and they are just way out of line with some of those industry peers in terms of how much each user is worth. But look, Julie, newfangled business model, maybe everyone gets excited about it and talks themselves into it. And we're just the boomers looking at Schwab and saying, why don't they trade at premium, blah, blah, blah?

JULIE HYMAN: Right, speaking of Schwab, an important distinction to make is that at least some of that Schwab money is indeed assets under management, not just assets under custody. In other words, when Sozzi calls it a financial services powerhouse, right now, Robin Hood pretty much has one financial service, right? They're not doing a full suite of services.

So you could extrapolate out, I guess, that some of this premium for Robinhood is, well, eventually, they're going to offer more services of some kind. And then those users, once they've won their loyalty, they'll be able to monetize them to a higher degree than they are right now. But again, that's several steps into the future.

One other key question I'm going to have for Robinhood going forward is there are a lot of other startups that do the same thing, and in some cases, do it differently, don't have payment for order flow, for example, or have other tweaks to the model. So going forward, are we going to see those start to differentiate themselves and get some market share? I think we'll just have to wait and see what happens on that front.