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Robinhood to Fetch $30 Billion Valuation Amid $70 Million Record Fine

Trading app Robinhood Markets Inc is bound to break the $20 billion valuation mark up to $30 billion, according to a new analysis from S&P Global...

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This story originally appeared on ValueWalk

Trading app Robinhood Markets Inc is bound to break the $20 billion valuation mark up to $30 billion, according to a new analysis from S&P Global Market Intelligence. The strong IPO showing is forecasted amid the record $70 million fine announced by the Financial Industry Regulatory Authority (FINRA) last week.

sergeitokmakov / Pixabay via Valuewalk

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FINRA found that Robinhood had sent its customers false or erroneous information about how much money they had in their accounts, and whether they could place trades on margins, costing them a whopping $7 million.

Robinhood's Strong Valuation Forecast

S&P Global Market Intelligence analysis and $30 billion value prediction are based on historical comparisons.

“While we had been concerned over a potential loss of customers due to Robinhood halting trading in GameStop in late January, the IPO filing reveals the company is still attracting user accounts at a brisk pace.”

At the end of March, Robinhood reported 18 million funded accounts, a 44% increase from December 2020.

“Based on Schwab's monthly daily average trades disclosures, retail trading activity appears to have settled down somewhat from the meme stock rally in late January and early February,” says the financial intelligence firm.

Robinhood's valuation forecast –and that of all online brokers– is a positive one, argue S&P, due to the high activity relative to pre-pandemic levels. Robinhood bodes well in particular since it heavily relies on transaction-based revenue.

"Robinhood continues to have tremendous growth potential, in our view, since it still does not offer lucrative ancillary services like wealth management. If it adds more revenue streams, it will be an even more formidable force to be reckoned with."

"Robinhood, the $30 billion cockroach of fintech"

According to a statement released by FINRA last week, Robinhood relegated the approval of trades to algorithms with “limited” oversight by employees, so clients would place trades despite not meeting the eligibility criteria.

Also, the misleading information gave consumers a false estimate of their purchase power and disguised the risk of losses faced in certain option transactions.

Amid the company’s record-breaking fine and its IPO announcement, Forbes’ Ron Shevlin wrote a scathing column stating: “Fining Robinhood has about as much impact on the company as spraying pesticides has on cockroaches.”

He goes on to cite the Minnesota Law Review: “Robinhood will not be held accountable because the lawsuits are almost certain to fail as a matter of law… Courts have determined that stockbrokers generally do not owe a fiduciary duty unless a customer has delegated discretionary trading authority to them.”