Robinhood is still losing money. The platform reported a drop in the number of monthly active users in its most recent quarter. Is it time for the struggling online broker to consider a sale?
Even though Robinhood’s stock has rebounded a bit in the past few days after reporting its latest financial results, it is still trading at only around $14 a share — more than 60% below the initial public offering price of $38 last year.
Analysts at Goldman Sachs and Citigroup slashed their price targets on Robinhood following the earnings report. The woeful post-IPO performance for the platform is a sign it may be better off as part of a larger firm, especially given the massive consolidation in the business.
Morgan Stanley (MS) now owns E-Trade and Charles Schwab (SCHW) has gobbled up TD Ameritrade.
And the deals keep coming. UBS (UBS) just bought roboadvisor Wealthfront (which is popular with millennials and Gen Z investors) last week for $1.4 billion.
So here’s a thought: Could Robinhood be a potentially good fit for a company like PayPal (PYPL), which also has a large base of younger customers and is looking to step up its game in investing?
“Where does Robinhood go from here? I can see them getting bought out or taken private,” said Hugh Tallents, a partner with consulting firm cg42. “But they wouldn’t be interesting to big banks, Schwab or Morgan Stanley. A wild card could be PayPal.”
The case for a PayPal deal
Tallents notes that PayPal plans to introduce more investing features. The company hired an executive who formerly was president at Ally Invest (ALLY), Rich Hagen, to lead a new Invest at PayPal unit last summer.
PayPal’s user base, especially the younger adopters of its Venmo service, could fit well with Robinhood, too.
“Robinhood has over 20 million accounts and the customers are young and active traders,” noted John Wu, president of Ava Labs, a cryptocurrency trading platform. “It’s an attractive demographic.” Wu added that Robinhood’s near-term woes could make it a good deal at the right price.
Wall Street seems certain that PayPal is willing to spend to grow. There were rumors last year that the payment portal made a reported $45 billion takeover offer for social media firm Pinterest (PINS). With its current market value of about $12 billion, Robinhood would be a much smaller deal.
PayPal, which will report its latest earnings after the closing bell Tuesday, had no comment when asked by CNN Business if it has any interest in acquiring Robinhood.
But PayPal president and CEO Dan Schulman has acknowledged that the company is looking to diversify and add more investing products, such as stock trading, to go along with its crypto services.
“We expect to launch more features next year, including equity investing capabilities,” Schulman said during a conference call with investors after PayPal reported earnings in November. “It’s quite exciting to see the initial positive reaction to our app, and we will continue to refine and expand its functionality to help consumers navigate an increasingly digital and connected lifestyle.”
For its part, Robinhood chief financial officer Jason Warnick has said that the company is not interested in selling itself.
“We’ve made massive investments in the last year around our infrastructure and our team. We’ve never been better positioned,” Warnick told reporters on a call after last week’s earnings. “We think the opportunity is big in front of us and we fully intend to pursue it as an independent company.”
And at least one prominent investor still thinks Robinhood has a bright future ahead. Ark Invest’s Cathie Wood added to her stake in the company following last week’s earnings news.
According to Ark’s own daily investment holding reports, Wood’s Ark Innovation (ARKK), Ark Next Generation Internet (ARKW) and Ark Fintech Innovation (ARKF) exchange-traded funds bought a total of about 2.5 million Robinhood shares on Friday.