Boom or Bust? Breaking Down the Robinhood IPO Plan

Robinhood has partnered with Goldman Sachs to do some pre-IPO work. They just paid $65 million in a settlement offer with the SEC for a claim that they misled their customers. Despite that, they’re still making $100 million a quarter on options trading.

Market analysts are projecting a valuation over $20 billion when Robinhood launches their IPO in 2021. With over 13 million customers set to do “pre-IPO trading,” the no-commission trading platform looks like a lock for a big win next year. Are you buying it?

I have concerns. Robinhood relies on payment for order flow for 80% of their revenue. In comparison, that number at Charles Schwab is only 2%. Like most mature businesses, they’ve learned the value of diversifying their revenue streams.

Congress is already calling for stricter oversight on payment for order flow, claiming that Robinhood and other commission-free trading platforms are actually “stealing” from their customers. If that argument gathers support, this IPO could be dead before launch.

Of course, barring any regulatory actions, investor appetites for a big-name IPO could push Robinhood share prices into the stratosphere immediately after launch. I’ll keep them on my wild card list for now. There are a few other potential IPOs I want to check out first.

Coinbase files for IPO, But May Have Already Missed the Boat

 

Bitcoin (BTC) made me a lot of money in 2020. I’m not alone. Last Christmas, it was trading at $7,256.02. It opened this morning at $22,926,03. Forbes is predicting it will be over $30,000 by the end of 2021. Does that mean Coinbase is a good bet if they go public?

Ironically, I did all my crypto trading on Robinhood this year. I never once touched an actual Bitcoin. I bought low, sold high, and made a tidy $10,000 in realized gains that I’ll happily pay Uncle Sam for this April. They were an easy win during a volatile year.

Coinbase is a digital currency exchange. They filed confidentially to go public on December 17th, so this one is definitely happening. They’re well-funded, having raised $400 million in their last two rounds of fundraising, and have a private valuation of $8 billion.

Let it open and watch it drop, then buy it. That may sound harsh, but I honestly believe this stock will be overvalued when it launches. The world has accepted Bitcoin, but Coinbase is not going to ride their coattails into profitability. They may have already missed that boat.

This is a Common $ense pick. Paypal is adding the ability to buy and sell cryptocurrency on their platform in 2021. They have 286 million users. Coinbase has 11.1 million. Do the math. Personally, I plan to buy it low and wait for an acquisition. Expect it to happen.

Affirm Will Profit from Pandemic Behavioral Changes

 

Amazon (AMZN) owns the online shopping space. I’m invested in them and I’m comfortable with that because they almost always make me money. I rarely look for alternatives when it comes to ecommerce investing. Affirm is one I have to pay attention to.

Established by Paypal co-founder Max Levchin in 2012, Affirm provides point of sale (POS) solutions for consumers, merchant commerce solutions, and a consumer-facing app where you can buy merchandise on time payments and open a high-interest savings account.

Affirm filed to go public in November. Their actual IPO date has not been announced yet, but they’ve applied for a NASDAQ listing under the ticker symbol AFRM. Most experts are expecting them to launch in January, but it could be later in Q1.

This is an interesting animal. Affirm has yet to post a profit, but they cut their net losses in half this year and increased revenue by 92.7%, from $264.4 million to $509.5 million. They have a solid customer base of 5.6 million in an ecommerce market valued at $3.4 trillion.

Due in part to the pandemic, global online sales grew 20% in 2020. Don’t expect that trend to reverse itself because we now have a vaccine for Covid-19. Many of the behavioral changes we’ve seen this year are permanent. Americans in particular enjoy shopping from home.

Keep an Eye on Paypal as a Market Influencer in 2021

 

According to an August article in Business Insider, 8300 retail stores were expected to close in 2020. That was five months ago. The end of year number could be much higher. Consumers will have fewer venues to buy big ticket items on time payments.

Affirm should benefit from that scenario, but Paypal already offers credit for qualified consumers looking to buy big ticket items. They’re also entering the crypto market and are my top choice for companies that could acquire Coinbase when that public offering tanks.

My plan is to buy Robinhood because I like the platform, pass on Coinbase until they hit bottom, and drop a few dollars into Affirm to see if their existing customer base can carry them. I’m also doubling down on Paypal (PYPL). You should too. They’re up 120% for 2020.

Kevin Flynn

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About the Author

Boom or Bust? Breaking Down the Robinhood IPO Plan

Kevin Flynn

Kevin D. Flynn is a former financial professional and founder of AdvisorScale Financial Writing. He lives in Leominster, Massachusetts with his wife Evelyn, two cats, and nine wonderful grandchildren.