Robinhood targets IPO valuation up to $35B amid warning that crypto incomes are slipping


Image Credits: Nigel Sussman (opens in a new window)

Robinhood released an S-1/A filing detailing its first IPO price range this morning. The company first filed to go public in early July after raising billions earlier in the year.

The well-known U.S. consumer fintech giant intends to sell shares in its public market debut at a price between $38 and $42 per share. Robinhood is selling 52,375,000 in its IPO, worth $2.0 billion to $2.2 billion. Another 2,625,000 are being offered by existing shareholders, while its underwriting banks have the option to purchase a further 5,500,000 shares in the transaction.

All told, Robinhood could see shares trade hands worth just over $2.5 billion in its IPO at the top end of its initial price range.

The Exchange explores startups, markets and money.

Read it every morning on Extra Crunch or get The Exchange newsletter every Saturday.

We want to know Robinhood’s simple and diluted IPO valuation ranges, and we want to dig into the company’s newly released preliminary Q2 2021 results. Then we’ll do some fun math to better understand just how rich, or not, Robinhood’s current price range seems to be. From there, we’ll discuss whether we expect to see Robinhood raise its price range before it debuts.

Sound good? Let’s get into it.

What’s Robinhood worth?

We’ll start by calculating a few valuation marks for Robinhood to help put its $38 to $42 per-share IPO price range into context.

First, Robinhood’s post-IPO simple share count is expected to be 835,675,280, not including shares reserved for possible underwriter purchase. That share count values Robinhood at $31.8 billion at $38 per share and $35.1 billion at $42 per share. Those figures rise by $209 million and $231 million, respectively, if we count the 5.5 million shares that its banks may purchase as part of the IPO.

But what folks will want to chat on Twitter about is the company’s fully diluted valuation. At the midpoint of its price range, Robinhood is worth more than $38 billion when shares tied up in vested RSUs and options are counted. That figure lands around $40 billion at the top end of Robinhood’s price range.

Robinhood would therefore be worth $35 billion, calculated using a simple share count, or as much as $40 billion if more equity is counted. Both numbers are fucking huge and indicate that Robinhood’s ascent in the last 18 months from breakout unicorn to category-defining upstart is about to be embraced by the public market, provided that it prices at least in range.

How do those prices feel, given our read of today’s market dynamics?

How is Robinhood doing?

At a very high level, Robinhood managed to best its Q1 2021 results in the second quarter. During the second three-month period of 2021, Robinhood expects to record between $546 million and $574 million in revenue. Against that figure are $536 million to $486 million in operating costs. In turn, those paired ranges yield net losses of $537 million and $487 million, respectively.

But don’t worry, adjusted metrics fans. The company’s adjusted EBITDA for the second quarter is expected to range from $59 million to $103 million.

Recall that in the first quarter of 2021, Robinhood had revenues of $522.2 million and a net loss of $1.44 billion, though that loss figure was not representative of the company’s operating performance, exaggerated as it was by a $1.49 billion accounting charge.

In the company’s year-ago Q2, $244 million in revenue generated a net income of $58 million and adjusted EBITDA of $63 million.

We lack greater visibility into how Robinhood managed to turn its record-breaking quarterly Q2 2021 revenue into such steep net losses. It may be that another accounting charge is at play, which would defang its net losses to a large degree. What is clear is that Robinhood’s cost base has expanded massively in the last year, from operating expenses of $186 million in Q2 2020 to a midpoint figure of $511 million in Q2 2021. That’s steep.

Update: As we expected, an accounting charge was at play. From the S-1/A, “The [Q2] net loss is primarily driven by the factors mentioned above as well as the change in fair value of convertible notes and warrant liability of $528 million […] which was marked-to-market as of the end of the three months ended June 30, 2021.”

Circling back to revenue: At the midpoint of its range, Robinhood generated $560 million worth of top line. That shakes out to a run rate of $2.24 billion. At its $35 billion, top-end simple valuation, Robinhood is worth 15.6x its run rate. At its maximum, fully diluted IPO price, that figure rises to 17.9x.

How Robinhood’s explosive growth rate came to be

Those are not cheap multiples. But they are also not incredibly high, either. Indeed, they are lower than the average revenue multiple for public software companies today — Bessemer pegs that figure at 20.5x.

What gives? Why is Robinhood pricing at what feels like a discount to present-day software incomes? Two ideas:

  • The current IPO price range is conservative, and Robinhood expects to price more aggressively.
  • Investors are not willing to give Robinhood a SaaS multiple because consumers are more fickle than business customers.

I suspect that our second point will hold true even if our first point bears out and Robinhood raises its range. The company would have to reprice very sharply higher to get into the upper half of SaaS valuations, looking at today’s cloud run rate multiples. It probably won’t happen.

Robinhood is therefore getting hit with a bit of the video game tax. Explained in simple terms, gaming companies don’t get software prices when they go public. Why? They are episodic and somewhat hit-based; a great game can boost figures but a clunker can whack them. Investors, therefore, price those companies — despite attractive margins! — at a discount to SaaS firms that sell to large companies, which feature rock-solid revenue stability.

Because Robinhood deals with consumers, who might decide to trade less in time, it has more uncertainty in its future growth than, say, Zoom. So it will trade at a discount to companies with similar margins and growth rates, but stickier top line.

To that end, observe the following riff from the company’s latest filing:

We expect our revenue for the three months ending September 30, 2021, to be lower, as compared to the three months ended June 30, 2021, as a result of decreased levels of trading activity relative to the record highs in trading activity, particularly in cryptocurrencies, during the three months ended June 30, 2021, and expected seasonality.

That’s precisely what we’re talking about.

Do we think that Robinhood will raise its range? Perhaps. We’d put it at 50/50 today, looking at its somewhat modest Q1 to Q2 growth rate, even though its year-over-year growth proved spectacular in its most recent quarter.

More TechCrunch

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

10 hours ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

12 hours ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo

Sony Music Group has sent letters to more than 700 tech companies and music streaming services to warn them not to use its music to train AI without explicit permission.…

Sony Music warns tech companies over ‘unauthorized’ use of its content to train AI

Winston Chi, Butter’s founder and CEO, told TechCrunch that “most parties, including our investors and us, are making money” from the exit.

GrubMarket buys Butter to give its food distribution tech an AI boost

The investor lawsuit is related to Bolt securing a $30 million personal loan to Ryan Breslow, which was later defaulted on.

Bolt founder Ryan Breslow wants to settle an investor lawsuit by returning $37 million worth of shares

Meta, the parent company of Facebook, launched an enterprise version of the prominent social network in 2015. It always seemed like a stretch for a company built on a consumer…

With the end of Workplace, it’s fair to wonder if Meta was ever serious about the enterprise

X, formerly Twitter, turned TweetDeck into X Pro and pushed it behind a paywall. But there is a new column-based social media tool in town, and it’s from Instagram Threads.…

Meta Threads is testing pinned columns on the web, similar to the old TweetDeck

As part of 2024’s Accessibility Awareness Day, Google is showing off some updates to Android that should be useful to folks with mobility or vision impairments. Project Gameface allows gamers…

Google expands hands-free and eyes-free interfaces on Android