Soon all tech news will be fintech news, all fintech news will be trading platform news and all trading platform news will concern the business mechanics of such services.
So, after looking into Robinhood’s fourth-quarter payment for order flow (PFOF) revenues this morning, we’re back with a related story. This time, however, we’re talking about Public.
Public, like Robinhood, is a zero-cost trading service. Its founders have worked to build a community-first platform, including offering ways to let groups chat about their investments.
And like Robinhood, Public has seen its growth skyrocket in recent days. Company representatives told TechCrunch today it was seeing “steady ~30%” month-over-month growth until Thursday, when “new user signups went up 20x.”
Both share strong backing from investors: Robinhood raised billions in new capital this week to ensure it has enough cash to meet clearinghouse deposit requirements. It managed to do so in part because its Q4 2020 numbers show that its PFOF business is ticking along nicely.
Public, flush with a recent $65 million Series C, took a different tack this morning and announced it would “stop participating in the practice of Payment for Order Flow.”
ANNOUNCEMENT: To better align our incentives with those of our members, we will stop participating in the practice of Payment for Order Flow.https://t.co/s9Vd2MyLcJ
— Public (@public) February 1, 2021
To which we say … all right.
On one level, this is neat. Public is not going to sell its order flow to market makers for fees. That’s good for users, but how will it make up the lost revenue? Tips, which will prove an interesting experiment in monetization.
TechCrunch asked the company if it believes tips will compensate for PFOF revenue, to which founders Leif Abraham and Jannick Malling replied via email that they were “optimistic that the difference will be offset by the optional tipping feature.”
However, dropping payment for order flow is only so brave a move from Public. After all, Public was not making Robinhood-level amounts of fetti from its PFOF business. Indeed, as we wrote when Public raised its Series C:
Before chatting with Public, I dug into its trading partner Apex’s filings to learn about its payment for order flow results from its recent filings. The resulting sums are somewhat modest for Apex’s collected clients. This means that Public’s revenue metrics, a portion of the aggregate sums, are even more unassuming.
Naturally, we were curious if the company had changed up its business model and thus had revenues heading into its new investment that we could not spot from external documentation. The founding team told TechCrunch that it had not changed its model, and that their company is more focused on user growth than near-term revenue targets.
But what about Apex’s Q4 2020 data? Do they show strong PFOF incomes for Public, or at least enough that would make its abstention more than a — admittedly intelligent — PR gambit? Let’s find out.
You can snag Apex Q4 2020 PFOF filing here.
Digging into the data uncovers a PFOF business that is yet modest in aggregate, and therefore even more demure for Public. Indeed, a quick sum of Apex December PFOF for stocks only — Public does not offer options trading to its users — shows that all its customers generated $1.84 million in revenue from the source in December.
In contrast, Robinhood made $91.4 million from PFOF in December, including $57.2 million from options-related activity. That would be harder to give up, we reckon, than a slice of $1.8 million.
Of course, all revenue is good; no company wants less revenue that comes with good margins attached. And so, Public is being brave by turning to tips in the near term to keep its top-line numbers up. But the company’s move does feel more like intelligent marketing than a revolution, for now at least.
In the same email, Public’s co-founders said that their company “may introduce new products for which we charge a subscription fee,” which seems reasonable.
Perhaps Public is correct in deciding that it needed another way to stand out from its in-market competitors. It’s not the only company that could be enjoying a Robinhood-led boom.
More when we get more data.
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