How on earth is Robinhood worth 5B?

Uber / Eng
1lll1l1lll

Uber Eng

PRE
Apple
1lll1l1lllmore
Oct 13, 2018 43 Comments

Someone help me understand. A couple points:

- they’re going up against huge brokers already (e*trade, ameritrade)
- from the outside it seems like robinhood is used mostly by millennials “playing” with stocks, who will switch to the larger brokerages with more features once they decide to invest seriously
- other large brokers are already looking into making “commission-free” versions of their platform to compete

Full disclosure, I am a millennial who uses robinhood and loves it. I just can’t picture myself using it when I actually have a lot of money to invest seriously.

Is it just hype, or is there logic behind the valuation?

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TOP 43 Comments
  • Amazon !rocksta
    I am curious why would you switch if you invest more? I think no commission is huge when it comes to large investment . Disclaimer I am not a robin hood user, invest in etf primarily
    Oct 13, 2018 3
    • Uber / Eng
      1lll1l1lll

      Uber Eng

      PRE
      Apple
      1lll1l1lllmore
      OP
      Not claiming to be an expert — but from what I’ve researched it seems robinhood in its current states lacks a lot of popular features: analytics tools, mutual funds, Roth IRAs are a few I’ve seen. I understand robinhood is probably looking to add all these features, but they’re playing a game of catch up against some huge players.
      Oct 13, 2018
    • Salesforce / R&D Ceetlode
      If you're going to actively invest "seriously" (and for the most part you shouldn't), the trading fees are - while non-negligible - not what will kill your profits. Your ability to forecast the market will be the primary contributing factor. To that end there are significantly better brokers available. For example, InteractiveBrokers provides a wealth of sophisticated analysis capabilities, many available sources of data and a fully functional API in several languages.

      The Venn diagram of people who are seriously investing and people who should be more concerned about trading fees than all the other brokerage attributes is vanishingly small. This is why Robinhood's user interface is optimized for unserious, gambling-esque trading. Take a look at the way Robinhood presents options trading and compare it to how several of the more professional brokers (in reality, "prosumer" brokers) present it.

      The brutal truth is that uninformed investors should mostly not bother trying to beat the market because they have no idea what they're doing. Likewise, informed investors typically care far more about execution, risk management, analytics, portfolio optimization, etc than the trailing costs of fees on any given trade.

      That leads us to the current predicament: Robinhood is primarily a gambling app for unserious investors, which is monetized by selling its order flow to institutional investors and high frequency trading firms. It is not investing software for people who have a clue what they're doing.
      Oct 13, 2018
    • Google hroQ43
      If this description is accurate, the job feels a bit morally questionable to me. I am debating whether I shall go for an interview there now...
      Nov 17, 2018
  • Microsoft ThxObama
    If they make a web version, it’s game over for Etrades, Fidelity’s and Schwabs of the world.
    5B does seem high, but probably about right.
    Oct 13, 2018 5
    • Why? I care about the features and they don't have much while valuation is already half of etradr
      Oct 13, 2018
    • Facebook bfcc
      I don't know about this anymore. One of the bets is that their competitors won't move to free trading because it'll kill their margins and competitor's investors won't like it so exec team won't pull the trigger.

      But this is happening now. Both Vanguard and Fidelity are offering free etf trading (on certain etfs, not all) Cheaper end of businesses see extreme cost cutting competition. Established players need to figure out if this is worth fighting for. Discount brokers might have to adopt RH business model if they want to compete.
      Oct 13, 2018
    • Everyone has to compete whether they like it or not. It's a copycat system. They will do whatever needed to keep their market share

      If rh ever becomes a threat to them, it is quite easy to drop the fee and take out rh.
      Oct 13, 2018
    • Robinhood lelel
      There already is a web version
      Oct 13, 2018
    • Microsoft ThxObama
      Holy crap youre right! Rip etrade
      Oct 14, 2018
  • I just can't get why a business simply based on offering free trades can be attractive.

    When investing I want tools to help me make profit, not trying to save $10 per trade. It does t amount to much unless you are a day trader which you gonna get killed for not having the tools you need.

    Also most people who are seriously investing have over 50k then the $10 is irrelevant.
    Oct 13, 2018 3
    • Facebook bfcc
      This is about future investors and untapped markets.

      There's a large population where $10 does matter. People that are just starting out or low income. I guess one of the hopes is that this population will stay with the platform over time when they gain higher levels of income.

      Last checked, average Robinhood users are around 30 years old. FINRA study from 2015 (data from 2012) showed average investor age is 47-51.
      Oct 13, 2018
    • I think if one cannot afford 10$ for a trade, probably shouldn't investing.

      It's like going fishing without the bait
      Oct 13, 2018
    • And if there is a real attractive market, it is very simple for etrade to waive the fee. That's why I don't get what problem RH is solving that is worth 5b
      Oct 13, 2018
  • Uber / Eng
    1lll1l1lll

    Uber Eng

    PRE
    Apple
    1lll1l1lllmore
    OP
    I guess I should come clean: I have an on-site with robinhood next week, and I’m just playing with the idea of getting the offer. Wondering if they have a hopeful future and if it’s worth joining right now.
    Oct 13, 2018 1
    • Salesforce / R&D Ceetlode
      They absolutely have a hopeful future. But it won't be because they're actually developing sophisticated - or even particularly useful - investing software. It will be because selling uninformed order flow to the rest of the market is very lucrative, and they've got a fantastic platform for capturing that value.

      So by all means work there, but don't use them for personal investing unless you're explicitly gambling for fun.
      Oct 13, 2018
  • Citibank / Eng TQtT37
    This valuation is 5 months old and is tied to “excitement due to crypto currencies”. Big red flag.

    https://www.google.com/amp/s/techcrunch.com/2018/05/10/robinhood-rockets-to-a-5-6b-valuation-with-a-massive-new-funding-round/amp/
    Oct 13, 2018 0
  • Citibank / Eng TQtT37
    You can ask the same question about 90% of SV unicorns. Answer will be there same. Investors changing the next .....
    Oct 13, 2018 4
    • The next thing. Yes if you are taking about new kind of products like Uber.

      But why RH would be any different than. Etrade?
      Oct 13, 2018
    • Facebook bfcc
      RH has traits investors love in startups. It's hyper growth, the population adopting the app is untapped compared to mature competitors, huge demand for the company to offer more products.
      Oct 13, 2018
    • Citibank / Eng TQtT37
      Etrade is publicly trades and we can see their financials. RH may or may not be worth 5B. Impossible to know without seeing financials. Last round valued them so someone sees that valuation. Won’t know until ipo. Could be the next FB or the next Snap.
      Oct 13, 2018
    • Hyper growth because it's free and easier to grow a small use base.

      Their customers are bargain hunters and will flee as soon as it costs them money to trade.

      They don't use it for the product, they only use it because it free.
      Oct 13, 2018
  • BlackBerry / Other
    TSLA420!

    BlackBerry Other

    BIO
    Putin’s mistress
    TSLA420!more
    The same way AMZN is nearly a trillion
    Oct 13, 2018 3
    • Google ipue10
      That makes no sense. Amzn has a very strong moat
      Oct 13, 2018
    • BlackBerry / Other
      TSLA420!

      BlackBerry Other

      BIO
      Putin’s mistress
      TSLA420!more
      Wait till you see Robinhood’s moat
      Oct 13, 2018
    • Thumbtack VhWy18
      And why others (e.g. some bigger stronger wallet companies could be one of them) cannot build the same
      Oct 14, 2018
  • Nvidia cactii
    They opened up a new market. Beginners who saw the trading fee and were scared to even buy their first stock. With RH, barriers to entry are reduced and you get a free stock if you join. Attract millennials and recent grads who are earning their first paycheck and convince them to invest in a stock with a tap on a mobile app. Monetize those people because in 10 years those same users are going to be in their prime earning years. Sure some will switch to full service brokerages. You bet a huge portion will see the number of forms you need to sign from other services and just say fuck it, I'm buying SNAP on Robinhood, YOLO!
    Oct 13, 2018 1
    • Citibank / Eng TQtT37
      Let’s see how they do through the next major downturn. If they’re able to make it through that they’ll be fine.
      Oct 13, 2018
  • You take away the free trading, they have no differentiation with other brokers.

    Not sure what problem they are solving.
    Oct 13, 2018 2
    • Amazon Gjdyveycc4
      Free trading is the problem they already solved.
      Oct 14, 2018
    • That is not a problem. Everyone can do free trades. Until they try to scale.

      Is there a point on creating a free Uber?
      Oct 15, 2018
  • Microsoft / Eng Capitalism
    How much is Snapchat worth again?
    Oct 13, 2018 1
    • Citibank / Eng TQtT37
      Oct 13, 2018
  • New / Eng
    rYWk56

    New Eng

    PRE
    Facebook, Google
    rYWk56more
    They are already adding more and more tools, and would expect that to continue to be on par or surpass what other brokerages offer and probably gonna be easier to use those tools since their UI is simple.

    Etrade has 3.8 million users after 36 yrs of being in business and has a market cap of 13-16B depending on the day.
    Robinhood just announced they have over 6m accounts in just 3 yrs of being in the market, and just built their own proprietary clearing platform which is a big differentiator from competition.

    The added tools are likely attracting more serious investors since Robinhood pays the cost to transfer your brokerage account to Robinhood. So I imagine it’s more likely to attract experienced investors to Robinhood vs investors leaving Robinhood.

    I’d be surprised if Robinhood didn’t pass Schwab market cap of 63-70B in the short term.
    Oct 18, 2018 2
    • It's like reporting page views instead of profit. It is very easy to acquire accounts with free plan.
      Oct 18, 2018
    • New / Eng
      rYWk56

      New Eng

      PRE
      Facebook, Google
      rYWk56more
      Maybe, but that’s probably a stretch given financial companies make most of their money on the backend and fees help cover bloated operations and further pad high profits. Financial companies aren’t like a buzzfeed business model.
      Oct 18, 2018
  • Dropbox / Eng 3Cs
    Isn’t their average account size tiny? Making 0.1%-1% a year on a $3k account is not very profitable. Larger accounts will go to TD, IB, etc and get better trade execution.
    Betterment and Wealthfront both had problems with finding enough millennials who had money to invest. Then the big brokerages came out with similar products at low fees and it became even harder.
    Oct 14, 2018 1
    • Unity ADLE63
      What products do the brokerages have to match betterment and wf?
      Oct 16, 2018
  • Sprint lxCy58
    Yeah, I don’t understand it either. The only difference between Robinhood and other brokers is no fees on trades. Seems like it’s a very small incentive considering most traders on Robinhood are beginners and likely don’t trade frequently. The only possible explanation is Robinhood figured out a different way how to make insane profits for themselves.
    Oct 13, 2018 1
    • Isnt it easy for etrade to just drop the fee?

      Its the same old strategy of grabbing the eyeballs and figure out how to monetize the traffic later. Only few succeeded
      Oct 13, 2018
  • Amazon Gjdyveycc4
    Same way as FAANGs are worth trillions
    Oct 14, 2018 0
  • Amazon / Eng DynamoDB
    They just do trading in a pretty way. And it's simple. But don't think they can go up against the bigger players.
    Oct 13, 2018 0
  • Deutsche Bank Bingham
    Things will cool down considerably on a market downturn (which started happening). Until things are going up, everything is rosy - it's similar to Coinbase
    Oct 13, 2018 0

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