Hey boys and girls: this is tom, and this is going to be a quick video about the robin hood ipo. I took a whole day to actually analyze it, and here are my insights. So, first of all, don't click, nothing, don't smash, nothing don't buy nothing. There's! No courses, no affiliate links.

No nothing just give me your attention, so robinhood ipo, it's a really crazy story. If you think about it, if you compare the hype that we had for the robin with ipo just a year ago versus what happened yesterday, this is like a grand canyon kind of gap. This is this is the toughest one i've ever seen andrew. It's still a good ipo good results for them, but i mean the gap is insane so what the hell happened.

So, let's start with the ipo, they raised two billion dollars, each of them vlad and his co-partner got 50 million each. I mean that's a success. However. That's nearly not as close as where this ipo should have been and as an evidence they went for the lowest possible price of 38 dollars.

The range was 42 to 38. They went for 38.. That's because the market was actually acting cold. Nobody was going gaga over robinhood uh.

I i think that there are a lot of retail investors who, if the stock breaks the print, i think don't have more money to be able to buy. I hope that they are able to get it open at some reasonable time. The momentum here is quite strong for the company, but it is an order flow company and i don't know what happens if commissioner gensler decides he doesn't like water flow companies. So i think, there's a lot of risk here.

Now they still get a 32 billion valuation, which is not a walk in the park. That means people actually think it's a good business, but it's not gaga crazy, like we actually anticipated just a year ago. So in this video i'll explain to you the good, the bad and the ugly let's get started so, first of all, let's start with the basics. Obviously we know that robinhood got a 32 billion valuation.

Yesterday, people actually bought shares at 32 billion, which means they see something in it beyond the jokes, beyond the memes, it's a good business reason being is that they have a lot of users: 22.5 million users, they're really nice, as far as cash flow they're, generating a Lot of cash 960 million in revenue just in 2020, already in q1, 2021 520 million. So you can clearly see the trajectory here. Very nice problem is that's just the beginning of the story. There's some major issues about robinhood that are lurking under the hood.

I just made it up. I didn't write it earlier so check this out. The problem with robinhood is, but despite these growth rates are amazing, they have issues that people are actually aware of. That's giving the company a little bit of a cold shoulder.

So the first thing is that this growth may not be as sustainable in a post-covered world, mainly robin dune actually exploded out of the stratosphere when people were at home. This was the only game in town, no sports, no gambling. So basically, robin hood became the only game in town and that's going away, so the insane growth that they had during the pandemic. Lockdowns is not going to be sustainable long term.

So whatever numbers we had in 2020 and even in the beginning of 2021, are going to go down significantly and that's getting priced into this ipo. The other thing is that they have a major issue that we need to discuss. Robinhood is insanely dependent on pfof payment for order flow. How dependent 81 dependent 81 of the revenue is coming from pf with now.

In case you don't know what that is. Essentially pfof is when the market makers are paying robinhood to give them the trades. Basically, when the broker brings the trade to the market maker, then you get paid like an intermediary. The reason market makers actually agreed to pay to robinhood instead of other guys, like a schwab, for example, is because robinhood have the tasty trades, the ones that they really want, which means retail investors high frequency day.

Traders swing traders and you have a completely even 50. 50 breakdown in buys and sales, so essentially, the market makers make no effort and they just live off the spread, no risk easy money. They just live off the percentages, however, as a market maker, when you get a block like a 50 million shares of ibm or google or a facebook or a microsoft, then it's time to scramble now that thing they don't want, but the easy nice little trades where It's completely a break even from robinhood, that's the one they want, and that's why robinhood is getting paid by market makers. Now, here's the thing this whole thing, which is essentially keeping robinhood alive, is being highly scrutinized and regulated by the us congress by the sec by everybody and their mom.

In fact, even the prospectus in the first page says that this whole pflf model is subject to insane scrutiny and regulation and is at risk. Robin hood themselves are saying that if that happens, that's a doomsday scenario. Essentially that would kill 80 of their revenues when you're. So dependent on one single line of business, that's essentially a single point of failure.

That's a huge issue for this company that investors are pricing in. If they had a more diversified business portfolio, then things would have been different, but they not they're dependent on this bs and that's also their biggest strength, but also kind of ironically, their biggest weakness. The fact that this brings a lot of retail investors to them and actually gets them to get paid by the market makers also creates the achilles heel for them. That's an irony, but that's how irony works, and this by no means is the only issue with robin hood.

The other thing is that over 50 of their users are first timers they've never traded before, and this is where they started the problem with these kinds of users, is they mature? They get better, they want more, they want not to have their information shared. They don't want to be sold as a product and they move on and they'd rather pay eight or ten dollars per share and get a schwab account. So a lot of their first timers, actually mature out of this platform into a more mature platform like a schwab or a fidelity or ameritrade, or they basically move out. There's a high churn rate with these first-timers who actually mature out of the platform.

It's like having a youtube channel about how to start in the stock market and just doing basic basic tutorials at some point. People will get all of this and move on to other channels. You have a high churn rate when you're doing beginners only that's the other thing that they have to solve, and right now they haven't their demographic is still about 50, first timers and again that's the strength, but also their weakness. And since this is a tom nash, video, we are going to talk about financial margins, but we're not going to do a deep dive.

That's a whole different video, but i did glance in their financials and what i found was laughable. Their margins are razor thin and even though i expected it from a low cost operator, like you have in the airlines, this is a low cost operator. This was really bad. In 2020, they've made 700 million in revenues.

You know what was their net 13 million out of 700 there's, not enough meat on the bone based on their current business model to justify any sort of valuation that gets me even closer to the stock right now. People that invest at 32 billion at this company are assuming the pfof is not going to get slacked. They assume that they will find a way to keep users on. They assume that people will still be using a lot of these retail investments.

Even though they're going back to work and find other stuff to get their hand around, but mainly they assume that the margins will get better and without robin hood, actually finding a way to diversify itself out of pfof. That can't happen. So, for me, the bottom line is quite simple. I think robin hood did a lot of good things.

I think robin hood made a lot of mistakes. I think at this valuation giving the risks i listed in this video. This is not good enough for me. I think there are better alternatives there.

For me again, just my opinion might be inaccurate might be wrong, might be the ramblings of a madman. You have to do your own research decide for yourself, allegedly blah blah mother effing blah, as always a huge shout out to the patrons and channel members. I hope you guys enjoyed this video. Let me know in the comments and i'll see you guys tomorrow.