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The Robinhood S-1 …Staggering Growth and Financials and Fines

 

The Robinhood S-1 …Staggering Growth and Financials and Fines

Courtesy of Howard Lindzon

If you read this you might pass it around so let me remind everyone …I am biased.

I am (Social Leverage is) a seed investor in Robinhood. I want my LP’s to make a fortune for the risk we took. When we invested, I had met the founders Vlad and Baiju.

in 2016 I wrote ‘Peak ‘Passive’ Investing? …The Rise of Robinhood…and ‘Trade Gen’

Back when we invested in late 2013, there was no cool wait list. There was no FINRA or SEC license/approval and there was no worry or thought about a business model, let alone any inkling that there would ever be 18 million funded accounts. There was a hypothesis that people would trade from their phones if the UI was fantastic. I knew this because of Stocktwits and Twitter and the cashtag we created. I was the knucklehead in the first meeting who told Baiju and Vlad that the trades did not need to be free (and of course they are not).

I remember many first and second year conversations with Baiju about growth, Robinhood Gold, the API integration we did early with Stocktwits, hiring and fundraising, but Robinhood grew very fast from the start, raised a tremendous amount of capital by 2016 and we as a firm have been able to mostly sit back and watch since.

Ok…onwards to the S-1

What stood out to me of course is the numbers and the growth. Here are a few:

$18 million funded accounts
$959 million in 2020 revenue and on pace for $2 billion in 2021
$81 billion in assets under management.
17 percent of the 2021 1st quarter revenue came from crypto and 34 percent of that 17 percent was Dogecoin
28 percent of Robinhood’s revenue came from options
34 percent of revenue comes from Citadel
$70 million fine from Finra.

I will stop there.

Here is what I gather from the numbers:

People, especially them Yoots in their 20’s and 30’s want to trade and invest.

Dogecoin was/is a bubble. Robinhood knows this too. The question is will more Dogecoins come along.

Robinhood for now is an options brokerage business.

As for the $70 million FINRA fine…I think it sucks but not for the same reason a lot of others do. The $70 million fine is the largest ever from FINRA, but how do you compare Robinhood’s actions to the banks in 2008 (even accounting for inflation). Our government is printing money like drunks so the only way for FINRA to prove a point is to make the case, make it public and not let companies or people pay fines.

That’s the system today and Robinhood’s IPO is coming.

My favorite read so far on the S-1 is from Matt Levine. Do read it. These riffs from Matt cut to the essence of the moment:

…the first half of 2021 was a huge moment for Meme Finance, that Robinhood Markets Inc. is the leading brokerage of Meme Finance,

more…

Robinhood is the brokerage for fun gambling on meme stocks and meme cryptocurrencies. The main theme of financial markets for the last year or so has been “fun gambling on meme stocks and meme cryptocurrencies.”

That has not been the main theme of financial markets for the last, like, 20 years. Meme trading feels like a new thing. Arguably the main theme of financial markets for the last 20 years has been “boring and extremely low-fee index-fund investing.” Robinhood to some extent represents a bet that the tide has turned, that people are sustainably bored of boring investing, that they want fun investing and — I almost wrote, “and are willing to pay a premium for it.” Of course Robinhood is free. Robinhood represents a bet that people want fun investing and are, uh, willing to suffer some slippage from their maximum risk-adjusted expected value to get it? And some of that slippage ends up being income to Robinhood?

Howard here again… Matt could be right that meme investing is a new type of active investing that is just here to stay.

I will end with a great Brian Lund riff on Trading and Knowledge because in the end, Robinhood is here to stay.

Want to know how worthless knowledge is by itself?

According to a 2020 study of cancer survivors warned about how alcohol consumption could inhibit their recovery – and even spur a recurrence of their disease – 56.5% continued to drink, 34.9% exceeded moderate drinking limits, and 21% engaged in binge drinking.

It probably took me five years to learn everything I needed to know to become a successful trader.

Thanks to technology, kids today can do it in six months – or less.

After that, it’s diminishing returns.

It’s been said that 90% of success in life is just showing up.

In the market, it doesn’t count for that much, but I’ll wager it takes up 50% of the cause.

I’m not going to give you a cute little package – conveniently adding up to 100% – on the rest, but I can give you an approximation of what fills the gap.

Meditation and mindfulness is more important than RSIs, MACDs, VWAP, or the indicator du jour.

Eating right and getting enough sleep is better than inside information.

Having charts updated and alerts in place before the market opens runs rings around chasing breaking news.

A few sessions on the couch yields more positive results than any scan, algo, or backtesting can.

Journaling, blogging, and writing about your trading every day – in a fearless and honest way – trumps getting into Twitter wars about whether XYZ stock is a buy/sell.

Successful trading is about being human and accepting the frailties, limitations, and blind spots that come with the condition.

Acquiring trading knowledge isn’t difficult. Recognizing when you have enough, and putting it to use on a consistent basis, is the hard part.

Once you have it, better to spend your time surrounding yourself with a community of like-minded folks who will help you – as you help them – to reinforce that which you already know, than to continue to pursue the false gods of perfect, but ineffectual knowledge.

“Knowledge is of no value unless you put it into practice.”

—Anton Chekhov

Have a great 4th of July weekend everyone.

Image via Pixabay


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Click here to see some testimonials from our members!