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Robinhood’s secret weapon could also be its undoing

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Robinhood's IPO filing confirmed what many analysts suspected: The online brokerage is growing fast. But the disclosures also underlined the precarious nature of that growth.
Now we know that Robinhood, which is going public under the ticker "HOOD," makes a ton of money when customers make a ton of trades. And the startup is worried that that system could be upended by legislators and regulators. Ironically, the eye-popping financials it unveiled in its S-1 could fuel the calls for reform.
Payment for order flow is Robinhood's key revenue driver. Robinhood said revenue tripled to $959 million from 2019 to 2020. Three-quarters of that came from rebates it earned for sending trade orders to market makers, also known as payment for order flow.
What goes up could go down. Trading volume could drop, for one. And the GameStop fiasco turned the spotlight on payment for order flow. Robinhood admits the growing attention from legislators and regulators could be a problem.
Don't underestimate Robinhood's momentum. Investors who believe that Robinhood can "maintain the pandemic and meme-stock level volume" will likely believe they can pull off the IPO, Moor Insights & Strategy analyst Melody Brue told Protocol.
Diamond said Robinhood likely has been "testing the waters," as companies going public typically do through conversations with potential investors. "They may feel confident they can get this done," he said.
And while Robinhood's drawn plenty of public criticism, it's probably the one trading app that Gen Z investors, born decades after Charles Schwab was founded, have heard of.
— Ben Pimentel
Buy-side leaders who make data-driven decisions now could prosper for years to come. That's why asset managers are prioritizing data and analytics initiatives at a faster rate than ever before. Broadridge helps you transform operations, strengthen client relationships and uncover opportunities that others may miss.
Everything you need to know about Robinhood's IPO. Check out the numbers and the risk factors and what people are saying about the much-awaited IPO filing.
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What's been your biggest professional blunder?
Learning that simplicity is one of the keys to scaling a company. You may have the most advanced product in the market. However, it will be a difficult path to success if buyers can't understand what you're selling. Simplifying your messaging, product and implementation will allow you to scale to more users at a faster rate.
What fintech company — besides your own — have you been most impressed with this past year?
I've been most impressed with Public.com, which is a rival to Robinhood. The execution to 1 million users within 18 months and market timing of raising capital and hitting unicorn valuation during the Robinhood situation were perfect.
What fintech sector or company is most underrated and overrated right now?
The most underrated fintech sector currently is financial data and analytics. Data is the new oil and with the growth and amount of unstructured data today, organizations are faced with the challenges of obtaining clean data. Big data analytics brings value by enabling users to analyze and extract information from complex data sets. With no-code AI, analyzing and extracting information will be easier than ever.
Buy-side leaders who make data-driven decisions now could prosper for years to come. That's why asset managers are prioritizing data and analytics initiatives at a faster rate than ever before. Broadridge helps you transform operations, strengthen client relationships and uncover opportunities that others may miss.
That's the proportion of daily trading volume represented by retail investors on the Russell 3000, compared to 15% in September, according to Morgan Stanley.
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