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Will an IPO Help Robinhood Survive Zero-Commission Trade Battle?
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Being one of the first trading platforms to offer commission-free trading, Robinhood Markets, a stock trading mobile app, has become an investor favorite during the coronavirus pandemic. The privately held brokerage firm, founded in 2013, was started with the purpose of democratizing equity investments. In fact, Robinhood pioneered the move toward zero-priced equity commissions. It has nearly 13 million users.
Although major online brokerage firms in the United States like Charles Schwab (SCHW - Free Report) , Interactive Brokers (IBKR - Free Report) and others joined the zero-commission trade war by introducing commission-free trading in stocks, exchange traded funds (ETFs) and options trades; Robinhood has gained popularity of late, especially during the pandemic. This is because of its sleek and user-friendly app.
Moreover, the app does not have any minimum-investment criteria, and allows traders to buy cryptocurrencies and even fractional shares. Driven by these facilities, Robinhood became popular among millennials during the lockdown as staying at home and government stimulus packages gave them surplus time as well as cash to begin with amateur stock market trading.
In fact, according to anonymous sources cited by Reuters, Robinhood is planning for an initial public offering (IPO) by 2021 and is working with Goldman Sachs (GS - Free Report) for the preparations.
Will an IPO Help Robinhood Compete With Other Industry Players?
Per people familiar with the matter, Robinhood could be valued at $20 billion in the IPO, though its value in the last private fundraising round in September stood at $11.7 billion. The jump in valuation emphasizes the growing popularity of Robinhood.
However, competing with industry players might not be easy for Robinhood.
This is because established names like Schwab and Interactive Brokers already have a significant presence in the brokerage market. The zero-commission trading has helped these firms garner substantial market share and improve their client base. As of Nov 30, 2020, Schwab’s active brokerage accounts totaled 29.2 million, while Interactive Brokers’ total customer accounts were 1.04 million.
In addition to providing trading services, these companies generate revenues from other means.
Schwab offers wealth management, securities brokerage, banking, asset management, custody and financial advisory services. Its Advisor Services segment constitutes more than 28% of net revenues. Further, the acquisition of TD Ameritrade Holding has strengthened its position as a leading brokerage player, resulting in the creation of a behemoth in the online brokerage space.
In addition to this deal, acquisitions of USAA’s Investment Management Company, Wasmer, Schroeder & Company, LLC, and Motif’s technology and intellectual property along with previous buyouts are expected to keep supporting Schwab’s revenues.
Similarly, while the launch of IBKR Lite by Interactive Brokers enabled investors to trade commission-free and resulted in a rise in market share, the launch of Impact Dashboard, an innovative sustainable investing tool, has made the company the first major brokerage firm to allow investors easily align their portfolio “with their values.” Also, Interactive Brokers’ deal to acquire the retail unit of Folio Investments is expected to further strengthen its position in the online brokerage space.
Thus, in order to survive the battle for zero-commission trading and remain competitive, Robinhood might need to diversify its business. Currently, Robinhood earns revenues majorly through rebates from market makers. With the practice of “payment-for-order-flow”, market makers pay Robinhood a small amount on each trade that its routes to them for execution.
While it also generates revenues from Robinhood Gold, (a suite of powerful investing tools that gives investors access to Morningstar research reports, bigger instant deposits and margin investing), and other sources like stock loans, income generated from cash, and cash management, these constitute a very small part of its total revenues.
Legal Marijuana: An Investor’s Dream
Imagine getting in early on a young industry primed to skyrocket from $17.7 billion in 2019 to an expected $73.6 billion by 2027.
Although marijuana stocks did better as the pandemic took hold than the market as a whole, they’ve been pushed down. This is exactly the right time to get in on selected strong companies at a fraction of their value before COVID struck. Zacks’ Special Report, Marijuana Moneymakers, reveals 10 exciting tickers for urgent consideration.
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Will an IPO Help Robinhood Survive Zero-Commission Trade Battle?
Being one of the first trading platforms to offer commission-free trading, Robinhood Markets, a stock trading mobile app, has become an investor favorite during the coronavirus pandemic. The privately held brokerage firm, founded in 2013, was started with the purpose of democratizing equity investments. In fact, Robinhood pioneered the move toward zero-priced equity commissions. It has nearly 13 million users.
Although major online brokerage firms in the United States like Charles Schwab (SCHW - Free Report) , Interactive Brokers (IBKR - Free Report) and others joined the zero-commission trade war by introducing commission-free trading in stocks, exchange traded funds (ETFs) and options trades; Robinhood has gained popularity of late, especially during the pandemic. This is because of its sleek and user-friendly app.
Moreover, the app does not have any minimum-investment criteria, and allows traders to buy cryptocurrencies and even fractional shares. Driven by these facilities, Robinhood became popular among millennials during the lockdown as staying at home and government stimulus packages gave them surplus time as well as cash to begin with amateur stock market trading.
In fact, according to anonymous sources cited by Reuters, Robinhood is planning for an initial public offering (IPO) by 2021 and is working with Goldman Sachs (GS - Free Report) for the preparations.
Will an IPO Help Robinhood Compete With Other Industry Players?
Per people familiar with the matter, Robinhood could be valued at $20 billion in the IPO, though its value in the last private fundraising round in September stood at $11.7 billion. The jump in valuation emphasizes the growing popularity of Robinhood.
However, competing with industry players might not be easy for Robinhood.
This is because established names like Schwab and Interactive Brokers already have a significant presence in the brokerage market. The zero-commission trading has helped these firms garner substantial market share and improve their client base. As of Nov 30, 2020, Schwab’s active brokerage accounts totaled 29.2 million, while Interactive Brokers’ total customer accounts were 1.04 million.
In addition to providing trading services, these companies generate revenues from other means.
Schwab offers wealth management, securities brokerage, banking, asset management, custody and financial advisory services. Its Advisor Services segment constitutes more than 28% of net revenues. Further, the acquisition of TD Ameritrade Holding has strengthened its position as a leading brokerage player, resulting in the creation of a behemoth in the online brokerage space.
In addition to this deal, acquisitions of USAA’s Investment Management Company, Wasmer, Schroeder & Company, LLC, and Motif’s technology and intellectual property along with previous buyouts are expected to keep supporting Schwab’s revenues.
Similarly, while the launch of IBKR Lite by Interactive Brokers enabled investors to trade commission-free and resulted in a rise in market share, the launch of Impact Dashboard, an innovative sustainable investing tool, has made the company the first major brokerage firm to allow investors easily align their portfolio “with their values.” Also, Interactive Brokers’ deal to acquire the retail unit of Folio Investments is expected to further strengthen its position in the online brokerage space.
Thus, in order to survive the battle for zero-commission trading and remain competitive, Robinhood might need to diversify its business. Currently, Robinhood earns revenues majorly through rebates from market makers. With the practice of “payment-for-order-flow”, market makers pay Robinhood a small amount on each trade that its routes to them for execution.
While it also generates revenues from Robinhood Gold, (a suite of powerful investing tools that gives investors access to Morningstar research reports, bigger instant deposits and margin investing), and other sources like stock loans, income generated from cash, and cash management, these constitute a very small part of its total revenues.
Legal Marijuana: An Investor’s Dream
Imagine getting in early on a young industry primed to skyrocket from $17.7 billion in 2019 to an expected $73.6 billion by 2027.
Although marijuana stocks did better as the pandemic took hold than the market as a whole, they’ve been pushed down. This is exactly the right time to get in on selected strong companies at a fraction of their value before COVID struck. Zacks’ Special Report, Marijuana Moneymakers, reveals 10 exciting tickers for urgent consideration.
Download Marijuana Moneymakers FREE >>