Will A Large Broker Buy Robinhood?
It is not secret that Robinhood has had troubles lately. That can make it a compelling acquisition for larger company. Will someone buy Robinhood?
Let’s find out what happened with the firm.
Robinhood Woes
The application was down in two of the most volatile trading days of this current year. That is not a good look for the application or the designers and developers behind the firm. The issue is even more disconcerting to those who may have suffered in more ways than one during this outage. If you’ve been following the situation, you’d probably see that there are those that call for a class action lawsuit against the company.
Robinhood users were disgruntled the first time around, they became even more frustrated the second time around! There’s already a twitter account called “Robinhood Class Action”.
When Bernie Madoff screwed over a bunch of Senior Citizens the world was in an uproar. Because Robinhood is a younger user base no one seems to care. This will not just get swept under the rug. We will show up with pitchforks if we have to. #payback pic.twitter.com/Bf6lTXwMzp
— Robinhood Class Action (@ClassRobinhood) March 4, 2020
Twitter users are out in full force continuing to disparage the company due to its missteps.
Robinhood didn’t get the memo https://t.co/MmWC9ZXEjD
— wallstreetbets (@wallstreetbets) March 4, 2020
That’s not all they are doing.
Users Threaten to Leave Robinhood
One significant issue for Robinhood would be a loss of users. The growing company is in a space that has significant competition from long time existing players as we all as new entrants. If users don’t like Robinhood, they can go to competitors such as Square Cash app to buy fractional shares, All Of Us, M1 Finance, Public, or other firms that will accomodate them.
A few users may think twice about switching because Robinhood does have an user friendly interface but how many people want to go through the trouble of financial loss due to an outage? A few options trades or equities trades are more complex and may be time sensitive. In such a situation, full functionality, and not just market data is necessary.
What Robinhood Said
Users saw a bland message from Robinhood on requests for comment. The firm released statement on its blog as they resolved the issue.
“We worked as quickly as possible to restore service, but it took us a while. Too long. We now understand the cause of the outage was stress on our infrastructure—which struggled with unprecedented load. That in turn led to a “thundering herd” effect—triggering a failure of our DNS system.”
Users are still smarting from their potential losses or lack of gains.
High Valuation
Remember that Robinhood is valued at around $7 billion in private market at the current moment. That’s quite a price tag for a firm with issues that are core to the product. This high valuation is quite likely going to correct in the eyes of potential buyers. That is, if potential buyers of the platform were to emerge in the near future.
Consolidation is taking place in the trading sector.
Morgan Stanley is finalizing its purchase of E-Trade and Charles Schwab purchased Td Ameritrade. Many of these larger discount brokerages went the Robinhood route and started offering zero fee trades.
That’s just one threat that could lower
Regulatory Risk
The other sword that may fall is that of regulation. Lawmakers begin to look further at market structure, how trades are made, and other aspects related to infrastructure. There’s more than one component that can harm a startup, regulation is one can genuinely hurt.
Now may be a great time for a larger company to buy Robinhood after the outage but we’ll see how events progress.