19 September 2018

Robinhood’s Valuation Is Put Over $5 Billion

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Robinhood Markets Inc. is set to be valued at about $5.6 billion in a new funding round, according to people familiar with the matter, a fourfold increase in just one year that reflects the stock-trading app’s soaring popularity among millennials.

The Silicon Valley startup is in the final stages of securing around $350 million from a group of investors led by Russian firm DST Global, according to the people familiar with the fundraising.

DST led Robinhood’s last funding round a year ago, which valued the company at $1.3 billion.

A Robinhood spokeswoman declined to comment.

The exploding valuation puts Robinhood among the top 15 highest-valued private technology companies in the U.S., representing an ambitious bet by investors that the firm can capture a sizable piece of the financial-trading market.

Robinhood’s three-year-old app has amassed more than four million users—roughly doubling from the prior year—by offering free stock trades that undercut even discount brokers that charge small fees.

The question is whether Robinhood can convince enough of its users to pay for premium services, such as “Gold” subscriptions that start at $6 a month for the ability to trade after hours and borrow capital. Robinhood also makes money on interest held in client cash accounts as well as by selling client trades to market makers.

As of last year, the median age of Robinhood’s users was around 30, meaning they are less likely to have ample cash in spare accounts to spend compared with older clients at big brokerages. The company is banking that the younger investors’ assets will grow over time, and that it will be able to sell them additional services. Robinhood has sought to keep costs low by shunning marketing and reducing overhead.

Investors also see opportunity in Robinhood’s recent introduction of trading in cryptocurrencies like bitcoin, according to a person familiar with the investment. Those trades are also commission-free.

At about $5.6 billion, Robinhood is already valued at a third of E*Trade Financial Corp. , which has a market capitalization of $15 billion. For investors in this latest round to earn a solid return on their investment they will be betting that Robinhood can approach that valuation.

Robinhood was founded in 2012 by two 20-something Stanford University math graduates, Vladimir Tenev and Baiju Bhatt. Now in their 30s, the founders have said they were inspired by the Occupy Wall Street movement in 2011 to make financial services accessible to everyone regardless of income.

Click here for the original article from The Wall Street Journal.

 

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