Will Robinhood (HOOD) Collapse?

Many people will wonder if Robinhood (HOOD) could collapse like FTX (FTT) did.

To explain, companies build and operate markets. For example, the full name is Robinhood Markets (HOOD). To elaborate, FTX built and operated markets for cryptocurrencies, nonfungible tokens (NFTs) and synthetic assets.

Robinhood operates a market for fractional stock shares and assets. In detail, a fractional share is a smaller portion of a share of stock. For example, $10 for a fraction of an Amazon (AMZN) share. Hence you can claim Robinhood sells synthetic assets.

A synthetic asset is an asset they build from other assets. For example, Robinhood builds fractional shares from stocks. Then sells those fractional shares through a digital marketplace.

Is Robinhood the next FTX?

Just as FTX sold digital assets through a blockchain marketplace. Robinhood sells its fractional assets through a digital marketplace.

FTX collapsed after investors learned it was running out of money. For instance, FTX and its partner Alameda Research owe bankrupt crypto lender BlockFi $1.675 billion, Decrypt claims. FTX ran out of money because many of the assets on its exchange were worthless.

The FTX exchange began collapsing in May 2022 when the algorithmic stablecoin TerraUSD (UST) imploded. TerraUSD fell when speculators realized there were no US dollars backing the stablecoin. The TerraUSD collapse triggered a series of events that eventually brought FTX down.

Could Robinhood (HOOD) be the Next FTX?

Robinhood (HOOD) could be the next FTX because of the poor quality of some of its investors.

For example, 43% of Robinhood users had a FICO Credit Score under 650 in January 2021, Stilt estimates. A good credit score is 690 to 719, NerdWallet reports. Similarly, a “Fair Score” is 630 to 689 and a bad score is under 630. Hence, 43% of Robinhood users could be poor credit risks.

Only 15.61% of Robinhood users had credit scores over 750, while 41.74% had FICO stores between 650 and 750 in January 2021, Stilt estimates. Hence, most Robinhood users had questionable credit in January 2021.

Moreover, Robinhood users with questionable credit were investing more money on the platform in January 2021.

Do Millennials have any money?

A large portion of Robinhood’s users are Millennials, age 26 to 41, Stilt speculates. The average Millennial had $28,000 in debt in 2019, CNBC estimates.

Finally, the average monthly balance at Robinhood was below those at its major competitors. The average Robinhood monthly balance was $7,649.90 in January 2021. In contrast, the average E-Trade balance was $8,833.79 and the typical TD Ameritrade monthly balance was $14,718.80 in January 2021.

Thus, Robinhood represents people with little money who could pull out all their money fast in a run. A run occurs when people think a financial institution or platform is running out of money. For example, FTX (FTT).

Robinhood is Experiencing Explosive Growth

Robinhood (HOOD) is experiencing explosive growth. Statista estimates the number of Robinhood users grew from 500,000 in 2014 to 22.9 million in the second quarter of 2022.

Moreover, Robinhood’s revenues grew by 42.79% in the quarter ending on 30 September 2022, Stockrows estimates. However, Robinhood’s revenues shrank by -43.72% in the quarter ending on 30 June 2022 and -41.57% in the quarter ending on 31 March 2022.

That growth is not generating income. For example, Robinhood reported a quarterly operating loss of -$174 million on 30 September 2022. However, the quarterly operating loss shrank from -$1.343 billion on 30 September 2021.

Additionally, Robinhood’s quarterly revenues grew from $371.18 million on 30 September 2021 to $530 million on 30 September 2022. Similarly, the quarterly gross profits grew from $321 million on 30 September 2021 to $328 million on 30 September 2022.

How Much Cash Does Robinhood Markets Have?

Interestingly, Robinhood Markets (HOOD) has a lot of cash. Robinhood had $19.563 billion in cash and short-term investments on 30 September 2022. Robinhood’s cash and short-term investments grew from $7.722 billion on 30 September 2021.

However, Macotrends estimates Robinhood had $10.309 billion in cash on hand on 30 September 2022. The cash on hand grew from $12.08 billion in 2020.

Moreover, Robinhood had a -$83 million quarterly operating cash flow on 30 September 2022. However, the quarterly operating cash flow grew from -$1.795 billion on 30 September 2021.

Robinhood reported a quarterly ending cash flow of -$221 million on 30 September 2022. Yet Robinhood can generate enormous amounts of cash. It reported a quarterly ending cash flow of $10.673 billion on 31 March 2022. So Robinhood can generate enormous amounts of cash.

Appealingly, Robinhood’s cash far exceeds its debts. Robinhood had $2.612 billion in total debts on 30 September 2022. The total debt fell from $3.284 billion on 30 September 2021.

What Value does Robinhood (HOOD) offer?

Many people will wonder if Robinhood (HOOD) is a value investment because it was trading at $9.99 on 2 December 2022. The share price fell from $25.94 on 30 November 2021.

Many people will wonder if Robinhood (HOOD) is a value investment because it was trading at $9.99 on 2 December 2022. The share price fell from $25.94 on 30 November 2021.

However, I think Robinhood could collapse fast because of the low stock price. My suspicion is that another financial institution or investment company will acquire Robinhood because of the cash. In fact, it will not surprise me if an investment bank such as Goldman Sachs (GS) buys Robinhood to gets it customer list and that cash.

Conversely, I recommend investors avoid Robinood because it could run out of money and collapse. Robinhood is not the next FTX, but I think it is still unstable and dangerous.