Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Nearly 25 years of experience in analyzing hundreds of companies, especially in Asia. Deep expertise in the following sectors:
- Technology (E-commerce, SaaS, Internet)
- Consumer 
- Special Situations/Deep Value Plays
- Holdcos/Stubs
- Asian Unicorns/Private Companies

Korea/Asia, Events, IPOs

Breaking Estimates Short Candidates: Robinhood Mkts, Seagen, Zimmer Biomet, Cerence

Robinhood Markets, Inc. (HOOD):  Sell Short

Robinhood IPO: Downside Risk Could Outweigh Any Potential Future Upside

Battle Lines Drawn As BABA Builds Out First/Last-Mile Capacity; But Who Will Fund 75+ Bn CNY CapEx?

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/robinhood-markets-inc" target="_blank" data-smartkarma-citation="entities:33532:1" rel="noopener">Robinhood Markets (HOOD US)</a>'s share price has been trending downwards in the past few weeks after reaching a 52 week high of $55 per share on 2 August. Robinhood's share price has declined to $40.93 per share, which is now approaching the IPO price of $38. In our view, there are two major factors including a potential ban on payment for order flow and lower trading activity that are likely to lead to lower share price in the weeks ahead. Potential Ban on Payment for Order Flow (PFOF) - All in all, there does not seem to be an overwhelming evidence to suggest that SEC will side with the status quo and not ban PFOF. Although the probability of banning PFOF may be less than maintaining the status quo, the former could involve a significant slash in Robinhood's share price.Lower Trading Activity on a QoQ Basis - As of September 2021, new downloads of <a href="https://www.barrons.com/articles/two-problems-loom-for-robinhoods-stock-51632930724" target="_blank" rel="noopener">Robinhood app</a> are estimated to be down about 78% on a QoQ basis. Daily active users are down about 40% YoY. The recent increased volatility in the global equities and cryptocurrencies markets have caused millions of retail investors in the US to become more cautious and they have not been as active in trading stocks and cryptos in the past three months as compared to 1H 2021. Given that transactions based services accounted for 80% of total revenues in 1H 2021, a decline in active trading of stocks and equities would negatively impact the company.

Robinhood Markets (HOOD US)'s share price has been trending downwards in the past few weeks after reaching a 52 week high of $55 per share on 2 August. Robinhood's share price has declined to $40.93 per share, which is now approaching the IPO price of $38. In our view, there are two major factors including a potential ban on payment for order flow and lower trading activity that are likely to lead to lower share price in the weeks ahead. Potential Ban on Payment for Order Flow (PFOF) - All in all, there does not seem to be an overwhelming evidence to suggest that SEC will side with the status quo and not ban PFOF. Although the probability of banning PFOF may be less than maintaining the status quo, the former could involve a significant slash in Robinhood's share price.Lower Trading Activity on a QoQ Basis - As of September 2021, new downloads of Robinhood app are estimated to be down about 78% on a QoQ basis. Daily active users are down about 40% YoY. The recent increased volatility in the global equities and cryptocurrencies markets have caused millions of retail investors in the US to become more cautious and they have not been as active in trading stocks and cryptos in the past three months as compared to 1H 2021. Given that transactions based services accounted for 80% of total revenues in 1H 2021, a decline in active trading of stocks and equities would negatively impact the company.

Robinhood - Impact of the Potential Ban On PFOF & Lower Trading Activity