A timer and the Robinhood logo
Source: Robinhood Twitter

Will Robinhood Survive, Go Bankrupt, or Eventually Be Acquired?

Mohit Oberoi, CFA - Author
By

Jan. 28 2022, Published 9:55 a.m. ET

Popular retail trading app Robinhood (HOOD) listed in 2021 with much fanfare. The company had reserved a big chunk of its IPO shares for retail investors. HOOD stock now trades at only about 12 percent of its 52-week highs and is trading sharply lower on Jan. 28 as markets give a thumbs down to its fourth-quarter 2021 earnings. Will Robinhood go bankrupt?

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Nothing has been going right for Robinhood. The macro-environment hasn't been supportive and there has been a severe sell-off in tech names. Robinhood’s sagging growth and the 2021 data leak didn't help matters. Many investors wonder what the future holds for Robinhood. Will the company survive, go bankrupt, or eventually be acquired by a bigger fintech company?

Robinhood’s growth has sagged.

While several fintech companies are witnessing a growth slowdown, Robinhood is reporting negative growth. The company's revenues peaked at $565 million in the second quarter of 2021 but fell sequentially over the next two quarters. Robinhood's monthly active users have also fallen for two quarters, while the average revenue per user has declined for three straight quarters.

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Robinhood has also posted an adjusted EBITDA loss for two quarters. Instead of going up, the company's metrics went south. Robinhood even turned negative on the adjusted EBITDA level. Markets have sent HOOD stock down and the worst might not be over for the company.

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What’s Robinhood doing to revive the growth?

In the first half of 2021, meme stocks and Dogecoin drove Robinhood’s growth. The mania has since died down, which is reflected in Robinhood’s sagging growth. The company is taking several measures to revive its growth. Robinhood wants to expand its crypto offering internationally.

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The company is also looking to add long-term investment products like those related to retirement on the platform. However, the progress has been somewhat slow, which has impacted the stock.

Will Robinhood go bankrupt?

Robinhood had $6.3 billion worth of cash and cash equivalents at the end of 2021. The cash on its balance sheet is higher than the total debt that it owes. This means that the company has negative net debt. While Robinhood’s growth has come down and its losses widened, a bankruptcy looks out of the question for now considering its strong balance sheet.

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The company had 22.7 million funded accounts at the end of 2021, which is a lot of users for any fintech company. Robinhood is working to reposition the brand as a platform for serious long-term investments rather than the “fun trading app” that it's perceived as. Brand repositioning won't be easy since most Robinhood users only see it as a trading app.

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Will Robinhood be acquired?

Robinhood’s market cap fell to below $9 billion in the early price action on Jan. 28. The enterprise value would be even lower given the negative net debt. While markets are apprehensive of HOOD stock, at these price levels, it could be a takeover target, or at least that’s what the rumor mill is on Wall Street.

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Recently, Bloomberg said that Robinhood could be a takeover target. In its report, Axios said that while the possibility of Robinhood getting acquired looks low for now, the continued slide in HOOD stock could increase the possibility.

Hugh Tallents, a senior partner at management consultancy cg42, thinks that Robinhood could be a takeover candidate for PayPal, which previously expressed its intention to get into the stockbroking space.

With Robinhood looking for a brand repositioning, selling to an established financial services player with a more mature brand could just do the trick. Would any of the fintech companies be interested in Robinhood? Quite likely, given the recent wave of M&A activity in the fintech industry, and Robinhood's tepid valuations after the crash.

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