Saturday, July 5, 2025

Latest

Robinhood: PayPal Trading Platform Represents Formidable Competitive Threat

On August 30, several media sources reported that PayPal Holdings (NASDAQ: PYPL) is exploring the creation of a stock trading platform. The company has apparently already hired Rich Hagen as CEO for the potential online stock brokerage; he previously co-founded a similar business that was sold to Ally Invest.

PayPal’s potential online brokerage could represent a significant competitive threat to Robinhood Markets, Inc. (NASDAQ: HOOD), as PayPal is an extremely strong financial company (stock market value of US$339 billion), has more than 400 million active users (nearly 20 times that of Robinhood’s 21.3 million), and would target the same young investor customer base that Robinhood does. PayPal currently processes nearly one of every four online transactions in the United States.

PayPal’s active users exceed 400 million; pace has accelerated over the past two years

The bull case for Robinhood is that it will continue to add young investors at a blistering pace, helped by its zero-commission framework, and this prospective growth both justifies its lofty stock market valuation and will allow it to expand. Robinhood’s enterprise value (EV) is around US$39 billion, and its adjusted EBITDA for the first half of 2021 was US$205 million. This implies that the ratio of EV-to-annualized adjusted EBITDA ratio is nearly 100x, an extraordinarily high figure for any growth company.

Robinhood can charge no commissions because of its payment-for-order-flow framework where it directs clients’ orders to market makers in exchange for fees. This technique is derided by full-service brokers who contend that the practice results in a less favorable transaction price for the online broker’s clients.

PayPal would not be the only major online payments company making inroads in the online stock brokerage business. Square, Inc. (NYSE: SQ) users can use that company’s Cash App to buy and sell Bitcoin (beginning in 2018), and to buy and sell stocks (beginning in 2019). In its 3Q 2020 earnings release, Square said that 2.5 million users had used its Cash App to buy stocks.

Robinhood’s 3Q 2021 Revenues Projected to Decrease Versus 2Q 2021 Levels

On its 2Q 2021 earnings call, Robinhood reiterated that its trading revenues will be down in 3Q 2021, a very unusual sequence for a growth company.

Note also that Robinhood’s adjusted EBITDA, a closely followed cash flow measure for growth companies, declined sequentially in 2Q 2021 to US$90 million from US$114 million in 1Q 2021 even though revenue increased 8% quarter-over-quarter.

(in thousands of U.S. dollars, except otherwise noted)2Q 20211Q 20214Q 20203Q 2020
Cumulative Funded Accounts (mill.)22.518.012.511.4
Monthly Active Users (millions)21.317.711.710.7
Assets Under Custody (US$ billions)$102$81$63$44
Average Account Balance (US$)$4,533$4,500$5,040$3,860
Average Revenue Per User (US$)$112$137$106$102
Options PFOF Revenue$164,604$197,860
Cryptocurrency PFOF-Type Revenue$233,103$87,587
Equities PFOF Revenue$52,012$133,301
Other PFOF Revenue$1,448$1,691
PFOF or PFOF-Type Revenue $451,167$420,439$235,000$202,000
All Other Revenue$114,166$101,735$83,000$68,000
Net Revenue$565,333$522,174$318,000$270,000
Adjusted EBITDA$90,173$114,771$79,000$59,000
Cash$5,077,752 $1,402,629 
Debt – Period End$7,369,522 $2,179,739 
Shares Outstanding (Millions)225.8225.6  

Robinhood’s stock declined nearly 7% in response to the reports of PayPal’s online stock brokerage initiative. However, given Robinhood’s still quite robust valuation, even after this decline and the competitive threat that PayPal poses, Robinhood’s shares still may face significant downside risk.

Robinhood Markets, Inc. last traded at US$41.42 on the NASDAQ.


Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Video Articles

Torex Gold Acquires Reyna Silver For CASH!

Dundee Acquires Adriatic Metals: The Balkan Growth Strategy

Gold Drilling Scaled to 60,000 Meters: How Big Can This Get? | Roger Rosmus – Goliath Resources

Recommended

Antimony Resources Drills 4.17% Antimony Over 7.4 Metres At Bald Hill

ESGold To Expand Mine Building At Montauban In Advance Of Gold & Silver Production

Related News

Paypal: Analysts Forecast Q2 Revenues Of $6.26 Billion

Paypal (NASDAQ: PYPL) will be reporting its second quarter financial results today after market close....

Wednesday, July 28, 2021, 03:03:00 PM

Robinhood Employs Unusual, Aggressive Tactics to Defend Payment for Order Flow Practice

Robinhood Markets Inc. (NASDAQ: HOOD) is employing very aggressive tactics to defend and preserve its...

Thursday, September 16, 2021, 04:39:00 PM

Robinhood Working on Paycheck Early Deposit Feature

In yet another effort to provide all the tools necessary for Americans to liquidate any...

Thursday, September 2, 2021, 11:48:00 AM

Robinhood Lays Off 9% Workforce, Points To “Hyper Growth” Period

After its disappointing Q4 2021 financials, Robinhood Markets, Inc. (Nasdaq: HOOD) announced on Tuesday that...

Wednesday, April 27, 2022, 09:29:00 AM

PayPal ‘Sneaking Back $2,500 Fine’ May Be Another Piece of Misinformation

Social media was again abuzz on Wednesday evening about PayPal Holdings (NASDAQ: PYPL) and its...

Thursday, October 27, 2022, 12:40:00 PM