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FTX would need to offer a ‘material premium’ to buy Robinhood: Analyst

·Reporter
·4 min read

There's a high bar that would need to be cleared for a Robinhood (HOOD) buyout, even after the stock's year-to-date slump, according to one analyst.

"Financially they’re not in trouble," JMP Securities analyst Devin Ryan told Yahoo Finance Live on Tuesday. "[Robinhood has] $6 billion in cash, and they’re not really burning much cash."

In Ryan's view, if a deal were to occur, it would likely have to be at a price tag well above Robinhood's current market capitalization of nearly $8 billion.

"One point that is a key aspect here for FTX or for anyone, is that Robinhood’s founders have voting rights that give them 10-to-1 on their Class B shares. So they only own 15% of the stock but they have over 60% of the voting power," Ryan said.

"So what that essentially means is that the company is not actively seeking an acquirer, in our opinion, and they would have to be on board with any price paid. So our view is that you’d need a really material premium to get those founders on board with a sale."

A Bloomberg report earlier this week suggested the cryptocurrency exchange FTX was exploring the possibility of acquiring Robinhood.

FTX CEO and founder Sam Bankman-Fried — who took a 7.6% stake in Robinhood last month — has denied any active deal discussions have taken place so far with the firm. However, the rumor has led to some speculation over the likelihood of such a tie-up.

Robinhood Markets, Inc. CEO and co-founder Vlad Tenev and co-founder Baiju Bhatt pose with Robinhood signage on Wall Street after the company's IPO in New York City, U.S., July 29, 2021.  REUTERS/Andrew Kelly
Robinhood Markets, Inc. CEO and co-founder Vlad Tenev and co-founder Baiju Bhatt pose with Robinhood signage on Wall Street after the company's IPO in New York City, U.S., July 29, 2021. REUTERS/Andrew Kelly

Robinhood's stock has fallen by nearly 50% so far this year through Monday's close. Shares are hovering around $9 each — a marked decline from Robinhood's $38 per-share price in its 2021 initial public offering. But the slide in Robinhood's market valuation belies some of the points of resilience the company has still maintained, and which have given it a cushion to carry on without an acquirer, Ryan argued.

Plus, the broader market overhangs currently weighing on Robinhood's stock are ultimately set to dissipate in Ryan's view.

"We’re facing down a potential recession. And not shockingly, people are a little more timid about transacting," Ryan said. Robinhood last reported transaction-based revenues that fell 48% in the first quarter this year compared to the same period last year.

"The stock is down, sentiment has shifted dramatically, and right now we’re in a really tough environment and that could continue for a quarter or two," Ryan said. "But history would say it’s not going to recur for a year or two. We eventually pull out of these downturns."

"They’re not a forced seller here," he concluded. "And so [a deal valued] anywhere close to where the stock is currently trading doesn’t make sense to us, and we don’t think makes sense to the founders as well."

'Checks the box'

If a deal were to occur, however, Ryan also made the case that FTX wouldn't be the most surprising buyer.

UNITED STATES - MAY 12: From right, Terrence A. Duffy, CEO of the Chicago Mercantile Exchange, Sam Bankman-Fried, CEO of FTX US Derivatives, Christopher Edmonds, chief development officer of the Intercontinental Exchange, and Christopher Perkins, president of CoinFund, testify during the House Agriculture Committee hearing titled Changing Market Roles: The FTX Proposal and Trends in New Clearinghouse Models, in Longworth Building on Thursday, May 12, 2022. (Tom Williams/CQ-Roll Call, Inc via Getty Images)
Sam Bankman-Fried, CEO of FTX US Derivatives during the House Agriculture Committee hearing titled Changing Market Roles: The FTX Proposal and Trends in New Clearinghouse Models, in Longworth Building on Thursday, May 12, 2022. (Tom Williams/CQ-Roll Call, Inc via Getty Images)

"Robinhood really checks the box of, as we all know, the retail investor. And FTX is looking to get into that space," Ryan said. "So there’s not that many ways you can do it in a scaled way [with] the type of investors, the millennial investors that are also quite active in crypto, to do it other than a firm like Robinhood."

Moreover, Robinhood's unprofitability to date has probably made it a less attractive target for a traditional brokerage firm that may be prioritizing keeping down costs, Ryan said.

"When firms like Schwab and Ameritrade get together ... there’s often huge expense synergies that come out of those deals, and the revenues are pretty complementary where you don’t lose much revenue," Ryan said. "Robinhood obviously is a business model that’s still not profitable. They’re moving toward that, they expect to get to at least cash flow positive by year-end. But that makes it harder, in our opinion, for some of the traditional players to look at acquiring them. We’re not saying that could never happen."

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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