The news: Cryptocurrency exchange FTX is reportedly looking into buying trading app Robinhood, according to Bloomberg, which cited people with knowledge of the matter.
- FTX CEO Sam Bankman-Fried was quick to downplay a potential takeover, saying, “There are no active M&A conversations with Robinhood.” But he also hinted at future tie-ups: “We are excited about Robinhood’s business prospects and potential ways we could partner with them.”
- Takeover rumors have been circulating since Bankman-Fried bought a 7.6% Robinhood stake worth $648 million in May.
What makes Robinhood a good target?
- Value for money: Robinhood could be a bargain purchase for the right buyer. Shares peaked at $70 last August and have since fallen fairly consistently to the current price of around $9. Robinhood also has ample cash reserves, which Bloomberg reported earlier this month exceed its market cap. Put simply, the digital broker may be undervalued.
- Large customer base: Robinhood boasted 17.3 million monthly active users as of last December. FTX can take advantage of this reach to enlarge its own customer base and boost trading volumes.
- Diversification: Robinhood already has a successful offering that combines crypto and stock trading options in one place. FTX recently expanded into stock trading and adding Robinhood’s existing products would fit with its plans to build a trading super app.
What’s the downside?
- Tumbling volumes: Robinhood has endured a decline in trading volumes and Q1 revenues missing guidance with a 43% year over year drop. Its moves to add new services—including cryptos, extended trading hours, and pensions—have seemed increasingly desperate.
- Reputation: Though FTX seems undeterred by it, Robinhood’s involvement in the GameStop saga, which almost forced it to default, did little to cement a respectable brand image.