On Monday, Bloomberg reported that FTX was internally exploring ways to acquire stock trading app, Robinhood (HOOD). Immediately, Robinhood’s stock rose more than 14% to $9.12.
Astute readers will remember that in early May, FTXs founder and CEO, Sam Bankman-Fried (SBF), personally acquired a 7.6% stake in Robinhood worth ~$479 million. If the leader of FTX is passionate enough about the business as to put half a yard on the line, there’s no doubt he would be willing to use his company’s deep coffers to make a bet as well.
There is only one problem… SBF responded to the report by stating that FTX is not currently in any M&A conversations with Robinhood:
“We are excited about Robinhood’s business prospects and potential ways we could partner with them… That being said, there are no active M&A conversations with Robinhood.”
By early morning the next day, HOOD was trading down 3.6% to $8.79. Regardless, it is still trading up ~5% from where it opened on Monday.
We won’t go into all the reasons why FTX might want to control Robinhood (we covered that in the newsletter here and in a tweet storm here), but it is worth taking note of the wording used in both the Bloomberg report and SBF’s response.
- Bloomberg reported that: “FTX is deliberating internally how to buy the app-based brokerage”
- SBF responded that: “there are no active M&A conversations with Robinhood”
These two things can both be true, but it doesn’t mean that FTX won’t reach out to the company in the future. Simply put, FTX might still acquire Robinhood.
Now, it is true that Robinhood’s co-founders collectively own more than 50% of the company and would need to agree to any sort of M&A, but with the company’s stock price down 85% from its high, shareholders (including SBF remember) might push for a deal.
Regardless, any deal would most likely have to be significantly higher than Robinhood’s current market cap of $7.5 billion. In our opinion it would have to be double… if not more.
We still believe that our prediction in May is the most likely option:
“SBF wants to integrate Robinhood and FTX somehow… That slowly, overtime, SBF will exert influence over Robinhood to integrate with FTX rather than a competitor.”
Acquiring Robinhood may be a good trade, but could also be a regulatory headache. Just this week, the US House Financial Services Committee released a report about the last week of January 2021 when meme-stocks like GameStop took off.
The report spends a significant amount of time on Robinhood, and more specifically about how the mania almost blew up the company. The report has some great quotes from Robinhood execs such as the COO writing, “Huge liquidity issue,” or the gem when the company’s Financial President wrote, “we are to[o] big for them to actually shut us down.”
If Robinhood is too big to fail, what would an acquisition make FTX?