Alphabet, the parent company of Google, has sold most of its shares in the popular trading app Robinhood, according to a regulatory filing on Friday. The tech giant reduced its stake in Robinhood from 5.2% to 0.6%, a decrease of almost 90%. The sale generated about $1.2 billion in cash for Alphabet, which invested $50 million in Robinhood in 2015.
Robinhood, which offers commission-free trading of stocks, options, cryptocurrencies, and ETFs, has been one of the most popular and controversial apps in the financial sector. The company claims to have over 31 million users, mostly young and novice investors who are attracted by its gamified and user-friendly interface.
However, Robinhood has also faced several regulatory and legal challenges, such as the backlash over its decision to restrict trading of certain stocks during the GameStop frenzy in January, the SEC probe into its payment for order flow practices, and the class-action lawsuits from customers who suffered losses or outages on its platform.
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Robinhood is one of the most popular stock trading apps in the US, but how does it compare to other apps in terms of valuation? In this blog post, we will look at some of the factors that affect the valuation of Robinhood and its competitors and see how they stack up against each other.
Valuation is the process of estimating the worth of a company based on various metrics, such as revenue, earnings, growth, market share, and user base. Valuation can also be influenced by external factors, such as market conditions, investor sentiment, and regulatory environment. Different valuation methods can yield different results, so it is important to use multiple approaches and compare them with industry averages and peers.
One of the most common valuation methods is the price-to-sales (P/S) ratio, which divides the market capitalization (the total value of all shares) by the revenue (the amount of money generated from sales). The P/S ratio indicates how much investors are willing to pay for each dollar of revenue. A higher P/S ratio means that investors are more optimistic about the company’s future growth potential, while a lower P/S ratio means that investors are more cautious or pessimistic.
According to Yahoo Finance, as of August 5, 2023, Robinhood had a market capitalization of $11.61 billion and a revenue of $1.5 billion in the trailing 12 months (ttm), which gives it a P/S ratio of 7.60. This is higher than the average P/S ratio of 6.28 for the online brokerage industry, which suggests that Robinhood is valued more favorably than its peers.
However, when we compare Robinhood to some of its direct competitors, we see that it is not the highest-valued app in the market. For example, eToro, which is a global online trading platform that also offers commission-free stock trading and social features, had a market capitalization of $14.4 billion and a revenue of $1.1 billion in 2020, which gives it a P/S ratio of 13.09. This is much higher than Robinhood’s P/S ratio, indicating that eToro is more highly valued by investors.
Another competitor is Webull, which is a US-based online trading platform that also offers commission-free stock trading and advanced tools. Webull does not disclose its revenue or market capitalization publicly, but according to PitchBook, it raised $150 million in a Series C funding round in May 2020, which valued it at $1 billion. Assuming that its revenue was around $100 million in 2020 (based on its user base and average revenue per user), we can estimate its P/S ratio to be around 10.00. This is also higher than Robinhood’s P/S ratio, suggesting that Webull is also more favorably valued by investors.
Of course, valuation is not the only factor that determines the success or failure of a stock trading app. Other factors, such as user experience, customer service, product features, security, and regulatory compliance, are also important to consider. Moreover, valuation can change over time as new information becomes available or market conditions change. Therefore, it is advisable to use multiple sources and methods to evaluate the performance and potential of any stock trading app.
Robinhood is one of the most popular and well-known stock trading apps in the US, but it is not the highest-valued app in the market. Compared to some of its competitors, such as eToro and Webull, Robinhood has a lower P/S ratio, which indicates that investors are less optimistic about its future growth potential. However, valuation is not the only factor that matters for a stock trading app, and Robinhood may have other advantages or disadvantages that affect its long-term prospects.
Alphabet’s decision to sell its stake in Robinhood may indicate that the tech giant is losing confidence in the trading app’s future prospects, or that it simply wants to cash out on its investment and focus on other ventures. Alphabet has been diversifying its portfolio and expanding into new areas such as cloud computing, artificial intelligence, healthcare, and self-driving cars. The company reported a 34% increase in revenue and a 162% increase in net income in the second quarter of 2021, beating analysts’ expectations.
Robinhood, on the other hand, is preparing for its highly anticipated initial public offering (IPO), which is expected to take place in late July or early August. The company plans to sell up to 35% of its shares directly to its own users through its app, a rare and risky move that could boost its valuation or backfire if the demand is low or the price is volatile. Robinhood aims to raise up to $2.3 billion from its IPO and reach a valuation of up to $35 billion, according to its latest filing.
The world of market systems keeps evolving as noted in the recent Fortune Global500 ranking. Indeed, everyone is plotting to move up.
Walmart, which generated $611 billion in sales in 2022, has been sitting pretty as the biggest company on the planet by revenue for 10 years straight. But it needs to watch its back.
Thanks to the Ukraine war’s impact on oil and gas prices and Saudi Arabia’s ability to cheaply pump oil from its immense reserves, Saudi Aramco had a banner year. It narrowly missed the top slot with $604 billion in revenue, up 51% from the year prior. Even more impressively, Saudi Aramco earned $159 billion in net income, racking up the most profitable year ever for a Global 500 company. If the energy industry has another surge like that in 2023, Walmart could get knocked off its perch.
But here’s the thing: Like the leaders of the world’s other giant crude oil producers, the folks at Saudi Aramco are also looking over their shoulders. They know that a global green transition will eventually end their dominance unless they get serious about the alternative-fuel business. That’s one reason why the Saudi government, which controls Aramco, is plowing its profits into green-tech R&D and a host of other industries.
A little further down the list, a different earthquake is underway. Alphabet, which ranks No. 17 on this year’s Global 500, is facing a classic innovator’s dilemma thanks to generative A.I. and a big challenger in the space: Microsoft (No. 30). We previously featured Jeremy Kahn’s story in The Reader on how Alphabet’s Google is scrambling to evolve as its profit-making search business is threatened. (Fortune newsletter)