Why Robinhood IPO is Highly Contingent on Crypto Market Performance

Following footprints of the recent Coinbase (COIN) IPO, we have a new crypto kid on the block, so let’s welcome Robinhood! Robinhood plans to allocate between 20% - 35% of its IPO shares to its retail customers.

As it is figured out from the company’s pre-IPO S1 memorandum (https://www.sec.gov/Archives/edgar/data/0001783879/000162828021013318/robinhoods-1.htm), Robinhood had $3.5 billion in cryptocurrency assets under custody in 2020 and $11.6 billion in the first quarter 2021. Robinhood launched cryptocurrency trading in 2018 and it has become a big part of the business. In the first quarter of 2021, 17% of total revenue came from cryptocurrency transactions, compared to 4% in the fourth quarter of 2020.

According to S1, the company offers seven cryptocurrencies for trading and transactions and said Bitcoin (BTCUSD) was the most traded asset on the platform by trade volume representing $54 billion throughout Q1 2021. Also Dogecoin (DOGE) represented 34% (!) of cryptocurrency transaction revenue over the same period compared to 4% in the fourth quarter of 2020.

“If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected,” the company said in the prospectus.

Robinhood filed its S1 yesterday, which breaks down how much revenue it has, how much cryptocurrency it's holding and how big of an impact market makers play into its financial performance.

All in all, Robinhood reported revenue of almost $1bn, exactly $959 million, in fiscal 2020, up 245% YoY. Net income was $7 million in fiscal 2020, reverting from a loss of $107 million in 2019. The company reported Q1 2021 revenue of $522 million, up 309% YoY.

More than 50% of Robinhood’s customers describe themselves as first-time investors. The company added 5.5 million funded accounts in the firm quarter. All in all, Robinhood reported 18 million funded retail clients, up from 7.2 million in 2020. The company reported 17.7 million MAU, monthly active accounts, and $81 billion of assets under custody. Assets under management grew to nearly $80 billion from $19.2 billion last March.

Plans for Growth: With an estimated 60% of U.S. adults not having investments outside a retirement account, Robinhood believes it can continue to add additional customers. However, here's a fine print: success of the upcoming share placements is highly contingent on whether investors believe in market’s growth instruments - first and foremost, cryptocurrencies. Apparently, Robinhood sees its unique distinction and best market positioning in serving exactly high risk-aware high return-motivated private investors. Without cryptos and, possibly, Reddit “meme” stocks its story would be somewhat dull and muted. According to WSJ, users opted to transfer roughly 206,000 Robinhood accounts that held $4.1 billion, or about 5% of the company’s assets under custody, to other brokerage firms in the first quarter. Presumably, a large part of their owners weren’t satisfied with their market performances.

For example, excellent timing picked by world’s largest cryptocurrency exchange Coinbase for its IPO allowed the company to receive warm welcoming and great initial exposure. However, due to lukewarm market conditions the stock has been suffering a gradual decline from $360-380 in mid-April to today’s $241.50.