Robinhood IPO’s Secret Buy Opportunity
I’ve got a watchlist IPO stock for you today.
I don’t usually do this, but the opportunity is so big. And it’s a perfect fit for America 2.0.
You’ve heard us talk about it before. It’s a company that makes one-touch investing a reality. It’s easy to use, which sings to the millennial generation.
Now, it’s gearing up for its initial public offering (IPO). And I might be recommending the stock soon.
That’s why I’m giving you my exclusive Robinhood stock analysis today. And be sure to watch till the very end. I’ll reveal a “secret” you can use before buying Robinhood:
Robinhood: An America 2.0 Company
Many of you who are familiar with trading of any kind, certainly if you are younger, Robinhood is the company you are using to buy and sell stocks, buy and sell options, or buy and sell crypto. I am making this video because Robinhood, even after the controversy of GameStop, meme stocks and all the other stuff that happened earlier this year, are growing gangbusters.
They are doing so well that they are going to be coming public. In other words, their stock is going to be available to everybody to invest. I am going to tell you a secret tip at the end of this video about this IPO that I believe could put you in a good spot if what I believe is going to happen actually unfolds.
First, to the analysis with respect to Robinhood’s IPO and why I believe this is actually a pretty astonishing company. It’s definitely an America 2.0 company. It’s a company set up for the millennial generation, which I believe is a significant part and a rising part of everyone’s business today.
The story with Robinhood begins in 2013. I can recall in 2014 coming across their app and trying to get people to be interested in it. It was new and even though its interface was so easy, most people at that point were much more wedded to their existing apps.
It might have been E*Trade, Ameritrade or Schwab or someone like that. Robinhood actually did something incredible. They made it where you had to join a list to sign up for the app. I remember waiting for months and months before finally getting the invite.
I remember with excitement going to open my account. Back in those days — 2014, 2015 — according to Robinhood’s documents they just filed for their IPO, they had just about half a million users. You would never believe, given what you read in the media today, where they are today.
At the end of the first quarter 2021, they now have 18 million daily active users (DAU). DAU is something that is a statistic that is compiled for everyone from Twitter to Facebook. They actually look at how many people come on to a platform and do something.
With Robinhood it could be buying or selling a stock, buying or selling an option, buying or selling crypto, or moving money in. You can actually hold a balance at Robinhood. 18 million people is a lot of people.
The other thing that’s amazing when I go through these documents is that the average age of a Robinhood user or account holder is 31 years old. This is a very young base of customers. When you compare that to someone like Schwab, it’s about 50 years old.
That’s a significant difference between the customer base for Robinhood versus Schwab. The other thing that’s amazing to me is how much sales they generate. It’s an extraordinary amount. In the first quarter of 2021, Robinhood generated more than $522 million in sales.
If you annualize that — every year is made up of four quarters — they are at a run rate of more than $2 billion in sales. This is a company that is doing something right. They have 18 million users coming on every day to do something and they are generating $522 million in sales per quarter.
That mix is really in favor of options. This is also somewhat controversial from the perspective of people like Charlie Munger. If you want to hear what Charlie Munger had to say about Robinhood and options and what Warren Buffett had to say, check into the IanCast my colleague Ian and I did on Friday.
Opening Stock Market to Everyone
We went through what Charlie Munger and Warren Buffett had to say about Robinhood and options. Sticking to the point here, Robinhood generated 38% of its sales from options, 26% from stocks and crypto was 17%. A significant part of crypto was from Doge.
For those of you who don’t know, this is the first meme coin. It was created as a joke and then Elon Musk and other celebrities took it on and caused many other people to adopt it as their currency. It now has very significant following worldwide.
In many ways, that represents Robinhood. Prior to Robinhood coming along, even though investing had gone from being for the super elites and super rich in the 1940s and 50s where commissions were high and it was prohibitive to have a shot of actually making a trade.
Eventually in the 1980s or so we got to discount brokers. It was more widely available to people. Schwab and others made it cheaper, but for a long time it was still $15, $20, $30, which may seem like a little to many people, but to a large part of our country that is unaffordable.
Some number of elites believe it’s right and stocks should only be for the elites and rich people. They will say, “If you don’t have $8, you shouldn’t be invested in the market.” I disagree. I am on firmly on the side of Robinhood opening up access to the capitalist system, the stock market and speculating through options to everyone.
It is definitely a way to make money. Certainly you take risks, but that risk is your own. You take responsibility for it and this opens up a way to do it. Robinhood was the very first one to bring all these innovations. No commissions — not on options, stocks or crypto.
The Charlie Mungers of the world will say that’s a scam and they charge you in the bid and ask prices. The truth is, the regular companies charge you that in the bid and ask price and then they used to charge you commissions on top of that. At the very least, Robinhood eliminated commissions.
Now, just like everyone else, it’s included in the bid and ask price as it is when you go to every other broker. There’s no real difference here in the way it runs its business or operation. The second thing people say is that they sell their orders to market makers.
All brokerage companies do that. There’s nothing special or unusual here. Some brokerage companies may have their own market-making operation, so they keep those profits for themselves. Others send it out to external market makers like Citadel and others that fulfill orders.
In doing that, they are acting like every other brokerage company. Truthfully, there’s no other way to operate in the stock market. Robinhood does not keep inventory of all the stocks you want to buy. They have to deal with people who are willing to transact to get it.
They make it their business to transact to be able to deliver the stock when you want to buy it. Or to take the stock from you when you want to sell it. The stock market would be unable to operate in its current form without the presence of market makers. There’s nothing scandalous, unusual or different with respect to Robinhood.
The other really democratizing and revolutionizing thing Robinhood did is they said you need no minimum balance. It really meant that anybody could download the app and instantly get going. You could put $1 in. You could put $10 in. In fact, they gave you a free stock to get you going.
Many people dismissed that. However, I have learned from many of my friends who joined Robinhood that many of them got GameStop as their free stock. Other folks got AMC. This has been a substantial addition to their wealth and their desire to learn more about investing and speculating.
Also, understanding the financial markets and using it as a means to better their lives. It’s definitely what the stock market has been for me. Many of the ethos that underpin Robinhood are the way I have gone about making money in the stock market myself.
I definitely was only able to afford stocks once the Schwabs and E*Trades of the world came online. Back then, commissions were as much as $20. Only after Robinhood came through and became a big enough presence in investing did all of them reduce their commissions down to $0.
The other thing Robinhood did that made it super easy to invest was they introduced fractional shares. Before, you would need to buy one share or 10 shares or 100 shares. Instead, they said, “You have $100? We will find a way to invest that for you.” You never have to care about shares anymore.
You just bring your money and buy what you want. Let’s say you want to buy $100 of Apple and one share is more than $150. You could never do it. Now you can own a fractional share. You can keep buying over time, which is also democratizing and opens things up.
That’s the basis of innovation. For me, innovation is when something that people want to do is made more available to more people in a cheaper, more convenient way. It gives access to people. The more convenient part is related the user interface of Robinhood.
If anyone has used it, it’s so much easier than any other brokerage company. Go compare it to E*Trade or Fidelity. I can tell you Robinhood is one-touch investing. If you know what stock you want and know what amount you want to put into it, you just put that in.
As long as the money is in your account, you can do it. They also offer access to cryptocurrency, which they were very early on. Robinhood was on Bitcoin very early. Folks who got in early on Bitcoin, Doge and others have made an extraordinary amount of money.
Why am I telling you all this? Number one, Robinhood is coming IPO. I believe this is going to be a significant company in the world of investing. Here’s the secret I mentioned earlier: Robinhood plans to give people who use Robinhood access to the IPO.
How to Get Robinhood Shares
Here’s why this is important. We have an IPO service where we focus on IPOs and, most of the time, companies will never give any shares in an IPO to regular folks. They are actually set aside for hedge funds, family offices and institutional investors.
Robinhood actually plans to set aside as much as 35% of their shares for the people who actually use the Robinhood app. I believe that’s super cool. I commend the company for doing it.
I believe, given the economics I laid out — 18 million DAU, $522 million in sales in the last quarter, run rate of $2 billion, revenue base skewed toward options, stocks and crypto — I believe this company could do well. Understand, this is not financial advice.
I am not a licensed financial advisor. If you load up on Robinhood and it goes down, sure, you can troll me forever. I want to warn you, all growth stocks like Robinhood tend to be volatile. This channel is intended for putting out ideas. Robinhood is the kind of idea we look at across our services.
I will be looking to put Robinhood in my Profits Unlimited service or our IPO Speculator service. IPO Speculator focuses exclusively on IPOs. We have a particular formula using various things, including the analysis I mentioned in this video. It will either go there or it might go into Profits Unlimited.
This is going to be a large company — a $40 billion company. With the growth rate it’s had, if it’s $40 billion I’m thinking it could be pretty cheap if you are willing to look one, two, five years out. That’s how growth investors are. That’s the way we look at the world.
We look out one, three, five years. In my experience, that’s how professional investors who really make the big money do it. They look out one, three, five years because they know in the early years there’s a lot of cost and you get the benefit in the out years.
This year, the Profits Unlimited portfolio is up about 8%. We track it on an equal-weighted basis. Then once you subscribe, you will have ongoing coverage of Robinhood. We have stocks in there like Coinbase, Palantir, Moderna and others that represent what we call America 2.0, Fourth Industrial Revolution, growth investing.
The Robinhood IPO is coming. They are going to give some number of shares to people who use the Robinhood platform. It might be worthwhile to go and start using it. At the very least, it will give you a shot at what I believe could be a valuable IPO.
Editor, Profits Unlimited