Selling your company — or not selling your company — is a complicated decision. Price, timing, pride and a host of other factors play into the decision. Hell, you might simply enjoy running the business, be it a startup, unicorn or public-market behemoth.
Sometimes the decision is made for a company’s leadership team. Zendesk’s work to avoid selling itself only to later acquiesce at a lower price is one such example. Twitter, which is in the process of a messy sale to Elon Musk, is another.
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All the above has been on our mind as Sam Bankman-Fried, the CEO of crypto exchange FTX, circles Robinhood. After securing a material stake in the business, he denied active talks to buy the U.S. zero-cost broker. Robinhood itself stressed the fact that its founders have voting control of the business, meaning that the choice to sell or not is theirs alone. We’ll see about that.
But why would a crypto exchange be even interested in buying Robinhood? After bouncing the issue around my head since the news somewhat broke yesterday that Robinhood might be in play, I’ve come up with an explanation. Let’s talk about it.
The user question
While the era of rapid user growth at Robinhood is behind it for now, it retains a material user base. As its Q1 earnings showed, the U.S. consumer fintech closed the first quarter with 22.8 million “net cumulative funded accounts,” up 100,000 from Q4 2021 and 4.8 million on a year-over-year basis.
Is that lots of folks? Yes, it is.
While it is hard to draw direct comparisons to other consumer financial technology companies, we can do a little bit of directional work. Coinbase, for example, had 9.2 million “monthly transacting users,” or MTUs, in the first quarter. Now, we cannot directly compare net-funded accounts with monthly active traders. However, it’s fair to note that we expect MTUs to work out to a fraction of net funded accounts. Because Robinhood has net funded accounts that are a multiple of the Coinbase MTU figure, it’s clear that Robinhood is large, at least in terms of active American crypto accounts.
That’s a busy way of saying that Robinhood’s funded account number would be a huge help to any crypto company looking to snag some U.S. market share.
Yeah, but…
Securing a good number of funded consumer trading accounts that mostly trade equities and futures isn’t exactly what FTX and its rivals do for a living, so does the numerical account comparison actually matter?
Yep. Not because Robinhood is a key driver of domestic crypto trading volume today, but because at one point in time its user base was, in fact, very busy trading digital assets. Recall that the crypto boom helped push Robinhood onto the public markets. And the crypto market tends to crash and then surge, which means that during the current downturn, fewer Americans are trading crypto than before — Coinbase MTUs have trended lower in recent quarters, for example — but they might come back.
Robinhood has seen its fortunes fall from prior peaks. It is massively cheaper to buy its shares than it was. So if you have a stuffed bank account and are looking to snag some assets on the cheap that may pay off when your long-term thesis that crypto is not going anywhere comes back into vogue, buying Robinhood actually could make good sense.
Even more, FTX has dipped its toes into the equities game, adding another reason in favor of this potential deal coming to fruition.
There’s one more wrinkle to consider.
The U.S. market itself
The United States is not a simple market to serve, replete with regulation and the like. But it is also a hugely lucrative market, one where social networks — to pick one example — find some of their most valuable audiences.
In short, if you sell stuff online or operate an online business, going after the U.S. market is likely on your road map. For FTX, which is based outside the U.S., buying Robinhood could be a way to wedge into the U.S. market in a huge way, effectively buying a footprint in the States that could take years and years to build on its own.
Robinhood is cheap after falling out of favor with investors amid struggles with its post-IPO business results. FTX has a lot of money, and its CEO has already shown an appetite for Robinhood shares. If Bankman-Fried bought Robinhood personally or via FTX, he would accrue a large market share in the United States trading game and a user base that has a history of trading crypto.
To which we say, sure, why not? It’s not like we have any IPOs to cover. This would be a tasty deal to parse!