Investors are betting that consumer trading of equity and crypto is rebounding and are consequently pushing the value of some former startups higher.
For a great number of private fintech startups that operate businesses similar to companies like Coinbase and Robinhood, this is great news. Consumer trading platforms have historically generated much of their revenue from trading, and more trading activity in turn leads to healthier businesses. And for startups that have yet to reach self-sufficiency, more revenue is a potential lifeline and a feather in the cap when they go out to raise more capital.
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This morning, let’s take a peek at recent news from Robinhood, remind ourselves just how many startups are out there offering consumer trading services directly or indirectly, and then riff through some market data to see if investors are being too optimistic or are really on to something.
What’s up with Coinbase and Robinhood?
Stock trading app Robinhood said today that it is bringing a zero-fee crypto trading service to the EU, not long after it launched its zero-fee equity trading services in the U.K.
The company, which raised billions while private and earned a $32 billion valuation in its 2021 IPO, is worth a far more modest $9.75 billion today. The company’s ups and downs reflect the fintech boom following COVID, when both retail investors and venture investors were very attracted to consumer-facing platforms that offered investing and savings services.
Crypto exchange Coinbase went public the same year via a direct listing and saw its valuation soar to $100 billion in its trading debut. But after trading at more than $300 per share at several points in 2021, the company’s stock fell to under $100 per share in mid-2022 as the crypto market went downhill. In recent weeks, however, the company’s value has greatly recovered and now stands at $134.63.
Worth some $32.2 billion today, Coinbase shares are up 301% this year, while Robinhood is up 39% (Google Finance data).
How does that impact startups?
This change in sentiment around trading is not small potatoes. There are a number of fintech startups similar to Coinbase and Robinhood that could benefit from this renewed optimism. Why? If public market investors are correct, it strongly indicates that startups with similar business models are also doing better in both usage and revenue terms. And the mere fact that Coinbase and Robinhood have seen their values recover this year makes valuation comparables for startups stronger, potentially helping those private companies access more capital.
What startups come to mind when we consider the cohort that could benefit from warming sentiment and activity at Coinbase and Robinhood? Public, for example, is a consumer-facing trading app in the U.S. that raised a $220 million Series D at a $1.2 billion valuation in 2021. There are other names, like Israel-based eToro, which called off its SPAC deal and raised $250 million at a $3.5 billion valuation earlier this year.
There are other names worth considering. Freetrade runs a similar service in the U.K., and Lightyear competes with it in that country and has operations in the EU. Bux facilitates investing in Europe, while Vest does so in Latin America. Webull recently purchased Mexican trading company Flink, indicating that market expansion is not a game only Robinhood is playing these days.
M1 makes money from payment from order flow (PFOF, which Robinhood brought to the lingua franca) and raised lots of money during the fintech boom. Then there’s MarketWolf in Asia, and we can’t forget Chaka or Gotrade. The list of trading-friendly startups goes on and on (don’t forget Shares!). I once even wrote that there was “infinite money for stock-trading startups” flying around.
We also have startups that help other companies offer trading services. Alpaca was perhaps the biggest name in this niche — it raised a $50 million round in 2021 and recently got a $15 million convertible note. The company competes with Upvest and lemon.markets.
So what’s going on with consumer trading that’s leaving investors so optimistic? Let’s take a look:
A little data
Here’s a chart of crypto trading volumes over the past year on exchanges, via The Block:
To home in on Coinbase, click on its name in the below chart:
You can see that Coinbase clearly had a miserable few months in the middle of 2023. However, following a period of doldrums in September, the exchange saw trading activity improve greatly. The company has been leaning on interest-based revenues in recent quarters, which should persist even if trading activity rebounds, so its recovery story is not hard to suss out. That explains the bump to its share price that we’ve seen in recent weeks.
Robinhood’s story has a bit more nuance to it. The company’s October trading data shows that the value of equity trades rose 9% compared to a year earlier, while options contract volume was up 23%, and crypto trading declined 34%. Those are not huge numbers either way. But compared to September, the company clearly had a better time in October.
Putting the pieces together, it does appear that consumer trading is doing better than it was a few months ago. Sure, we’re miles below the heights reached in 2021, but after spending so long in the dumps, this positive data could provide a morale boost for these companies’ private counterparts, and potentially even greater access to private capital. That’s music to the ears of any fintech startup, given how much VC investment in financial technology has contracted in the last two years.