By Thornton McEnery
Robinhood isn’t shooting straight in 2022.
Shares of the popular retail broker /zigman2/quotes/228268942/composite HOOD -2.29% are down 28% so far this year, even after a monster rally on Friday, raising the question of whether the company that has billed itself as democratizing investing is losing traction among the proletariat.
Robinhood may be facing stiff headwinds, such as a shrinking base of retail investors now that the meme-stock phenomenon is fading , but there has to be a silver lining, right?
Well, Robinhood would argue — and pretty much did on Thursday’s earnings call with analysts — that it will be bringing in new revenue this year thanks to product launches.
The company’s rosy outlook is shared by four of the 14 analysts who cover the financial technology platform , assigning buy ratings on the stock, which did bounce 9.7% off its all-time low on Friday.
But let’s distill the bullish case for Robinhood’s future: new moves into securities lending, retirement accounts, and international crypto trading coinciding with its new cryptowallet offering.
Securities lending isn’t a difficult way to make money, especially amid rising interest rates. But the equities market doesn’t appear to be a very popular place these days. In fact, some family offices and hedge funds at a recent conference in Miami expressed an interest in avoiding stocks altogether for the foreseeable future.
And when it comes to those retirement accounts, who is Robinhood’s target audience? Weren’t they originally aiming for a less geriatric demographic?
One year ago, you could argue that Robinhood’s base was a diehard pool of traders pushing the prices of GameStop /zigman2/quotes/203755179/composite GME -6.86% , AMC Entertainment /zigman2/quotes/200235402/composite AMC -1.31% and others in a group that came to be classed as meme stocks. But when Robinhood halted buying on those stocks one year ago Friday , it may have frittered away trust among some of its stauncher supporters within the Reddit crowd.
Some former users may now perceive the app as an existential threat, one that colludes with market makers and short sellers to anchor the prices of their favorite stocks that might otherwise be free to soar to the moon.
Others see Robinhood’s decision last year for what it was: a reaction from a mega-startup utterly unprepared to reckon with what its brand of democratized investing could do to the masses and ultimately the stock market.
Many users who wanted to keep trading but no longer trusted Robinhood migrated to Fidelity or Charles Schwab /zigman2/quotes/201281754/composite SCHW -1.97% , both of which may have a little bit more experience in the business of handling retirement accounts.
So even if there are former customers who don’t think Robinhood CEO Vlad Tenev is a puppet of hedge-fund manager and billionaire Ken Griffin and still like the app, they are likely acutely aware that the broker had a very public liquidity issue, which isn’t a great thing to have hanging out there if you want someone to dole out funds.
And on the crypto front, companies such as Coinbase /zigman2/quotes/225893452/composite COIN -2.86% are a clear sign that the competition is pretty stiff in that category.
Still, it seems suddenly likely that we’re going to start hearing a lot more about Robinhood and nonfungible tokens, or NFTs, in the weeks to come.
Clearly, the market thinks that Robinhood shouldn’t be trading below $10 a share, since it bounced off that floor like a lemur on Adderall during Friday’s action, but that might be more about how tasty the company looks to would-be acquirers, which means it might not want to levitate much higher than $15.
We’ve conjectured over how the San Francisco–based personal finance platform SoFi Technologies /zigman2/quotes/222838146/composite SOFI +4.00% should take a hard look at grabbing Robinhood’s customers and its $3 billion cash on hand at a discount, but we’re also still banging the drum on Goldman Sachs /zigman2/quotes/209237603/composite GS -0.75% doing more than just grabbing M&A fees for Anthony Noto, its own former employee and the current SoFi CEO.
While Goldman CEO David Solomon might prefer lighting $8 billion on fire than taking on the PR nightmare that would be adding Robinhood to Goldman’s portfolio of offerings, it might make sense to at least think very, very hard about it.
Solomon has leaned in on building out Goldman’s consumer product Marcus, making it a signature of his tenure, and it has become clear, to some at least, that the executive he’s put in charge of consumer banking, Stephanie Cohen, is in pole position to eventually succeed him as chief executive.
There are, of course, people — maybe millions of them — who are still interested in using Robinhood to trade but are wary about it serving as a home for their retirement savings.
Can you think of a brand that’s unlikely to prompt such concerns? Here’s one: Goldman.
On its own, Robinhood is a promising big idea struggling to navigate what could be a tough market for risky assets. Ultimately, it may be more accretive to someone else than viable on its own, but only time will tell.
So, there may be a bull case for Robinhood, but some may not find a buyout an ideal outcome.