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Why FTX Should (and Shouldn't) Buy Robinhood

 2 years ago
source link: https://www.businessinsider.com/pros-and-cons-of-ftx-buying-robinhood-2022-6
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What a Robinhood takeover could bring to FTX

  • Cryptocurrency exchange FTX is reportedly looking into buying trading app Robinhood.
  • Robinhood could benefit from the stabilizing influence and positive momentum of a crypto giant that has achieved considerable growth in the past two years.
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The news: Cryptocurrency exchange FTX is reportedly looking into buying trading app Robinhood, according to Bloomberg, which cited people with knowledge of the matter.

Insider Intelligence

FTX CEO Sam Bankman-Fried was quick to downplay a potential takeover, saying, "There are no active M&A conversations with Robinhood." But he also hinted at future tie-ups: "We are excited about Robinhood's business prospects and potential ways we could partner with them."

Takeover rumors have been circulating since Bankman-Fried bought a 7.6% Robinhood stake worth $648 million in May.

What makes Robinhood a good target?

Value for money: Robinhood could be a bargain purchase for the right buyer. Shares peaked at $70 last August and have since fallen fairly consistently to the current price of around $9. Robinhood also has ample cash reserves, which Bloomberg reported earlier this month exceed its market cap . Put simply, the digital broker may be undervalued.

Large customer base: Robinhood boasted 17.3 million monthly active users as of last December. FTX can take advantage of this reach to enlarge its own customer base and boost trading volumes.

Diversification: Robinhood already has a successful offering that combines crypto and stock trading options in one place. FTX recently expanded into stock trading and adding Robinhood's existing products would fit with its plans to build a trading super app.

What's the downside?

Tumbling volumes: Robinhood has endured a decline in trading volumes and Q1 revenues missing guidance with a 43% year over year drop. Its moves to add new services—including cryptos, extended trading hours, and pensions—have seemed increasingly desperate.

Reputation: Though FTX seems undeterred by it, Robinhood's involvement in the GameStop saga, which almost forced it to default, did little to cement a respectable brand image.

The big takeaway: Even if FTX decides not to make an offer for Robinhood, future partnerships and closer ties between the two seem likely. FTX could reach a larger customer base through the digital broker while widening its product offering and gaining greater exposure to stock trading. Robinhood could benefit from the stabilizing influence and positive momentum of a crypto giant that has achieved considerable growth in the past two years and has ambitions to build a trading super app.

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