SEC Chairman Gary Gensler told Barron’s on Monday that a ban of payment for order flow (PFOF) may soon be implemented by regulators and the controversial business model for companies like Robinhood may be coming to an end.
Gensler has gone on record as an opponent of PFOF, where wholesale market makers send client orders to brokers in exchange for a fee. Gensler and many other regulators have claimed that the PFOF business model is a major conflict-of-interest.
In response to the release, Robinhood’s stock fell to $43.64 per share shortly after Gensler’s thoughts were publicized. A nearly 7% skid in price may be the tip of the iceberg for the company if the SEC does indeed have plans to end PFOF. Robinhood’s business model of zero-commission trading may have to be reconstructed should something like this occur.
The PFOF model was heavily criticized in February during the federal hearing regarding Robinhood’s trading limits to counteract the GameStop short squeeze. Robinhood CEO Vlad Tenev was criticized at the hearings by the House Financial Services Committee in regard to how the PFOF business model supported biased relationships with companies like Citadel and Melvin Capital during the controversy.
Despite the overall success of Robinhood’s shares since going public earlier this month, the group has had some recent roadblocks besides the latest regulatory sentiments. PayPal is considering a stock trading platform in the United States, sources say.
With federal regulators and new competition breathing down the company’s neck, Robinhood may be due for drastic changes sooner than later.
Robinhood posted a massive net loss last quarter to the tune of $502M on only $565M in revenue.
Following the announcement, the company’s earnings call was a bit unusual, sounding more like a live AMA Reddit thread as the platform’s shareholders were given an opportunity to talk to senior management, a platform usually reserved only for Wall Street analysts. This format led to the submission of 1,300 questions, way more than could be answered in the time allotted, so only the most upvoted were selected to be answered on the call itself.
One person asked if they could get a Robinhood hat and hoody jacket, a surreal insight into how shareholders are thinking about a company that lost $2 for every dollar it brought in last quarter. Another shareholder asked if Robinhood was getting a crypto wallet.
“…I know that there’s been a ton of enthusiasm from the crypto community and the Dogecoin community in particular, on getting access to wallets and it’s something that our teams are working on,” said Robinhood CEO Vlad Tenev.
When the shareholders’ turn was over, the analysts took control, asking more pointed questions, like what happens when Robinhood runs out of potential customers that have so far comprised the demographic that led to the company’s early success.
Tenev said that “I think more and more, you’re going to see Robinhood, particularly with our mobile first platform and ease of use, be become incredibly attractive to folks that haven’t previously considered Robinhood, is the go to place. So we’re pretty optimistic about the opportunity ahead of us. And that’s limiting the response to investing. I think there’s a lot more that we can do, when we talk about being the single money app for our customers.”
The company’s stock went down slightly after earnings.
Fintech IPOs are back. Affirm, a fintech company whose platform offers “a point-of-sale payment solution for consumers, merchant commerce solutions, and a consumer-focused app,” is the latest company to file for an IPO.
Affirm’s S-1 was filed earlier today, revealing that they intend to raise $100 million. The company generated $509M in net revenue during its fiscal year ending June 30 and a net loss of $112 million.
|Fintech||Date Filed||Date Public||Amount Raised|
Unrelated to fintech, but still “tech” are pending IPOs for DoorDash and Airbnb.
At least three federal lawsuits have been filed against the directors of OnDeck relating to the announcement that the company is being acquired by Enova. These suits allege securities act violations with regards to how the technical aspects of the deal were disclosed while the initially reported action in the Delaware Court of Chancery alleged a breach of fiduciary duty.
The federal securities lawsuits are:
Daniel Senteno v. On Deck Capital, Inc. et al – Case 1:20-cv-01179-MN
Eric Sabatini (on behalf of a class) v On Deck Capital, Inc et al – Case 1:20-cv-01166-MN
Mohamed Aboubih v On Deck Capital, Inc. et al – Case 1:20-cv-07319-Vm
Shares of OnDeck have suffered in the last week as the market has seen a dramatic pullback. Shares have traded as low as $2.17 on Wednesday, down 12% from the previous day. The company’s market capitalization is at $128.2M million, down from its 2014 IPO value of $1.32 billion.
The collateral damage of market panic led to all-time low share prices for online lending companies OnDeck and LendingClub on Monday. By noon, OnDeck was down 7.5% on the day at $2.55 (the low was $2.47) and LendingClub was down 5% at $9.62 (the low was $9.26).
Online lender Elevate also hit a new all-time low of $2.50.
Lending Club’s stock dropped to its lowest level on Monday, closing at $3.27, according to the online lending tracker. That puts the company down 78% from its IPO price of $15 and down 87% from its all-time high.
Worse yet though for the company is that competitors like Goldman Sachs have been able to undercut Lending Club’s rates (Goldman Sachs’ Marcus charges no late fees or origination fees), while simultaneously tapping into a cheaper cost of capital (deposits).
Square is the big winner thus far according to the deBanked Online Lender Tracker. The company’s stock price is up 373% since its IPO and already up 22.76% YTD.
OnDeck and Lending Club by contrast are down by more than 70% from their IPOs and down 17.6% and 2.66% YTD respectively.
But the real loser so far in 2018 is Bitcoin. As of this writing, the Coinbase price of BTC is around $11,310, down more than 18% from its 2017 year-end price of $13,860. Bitcoin had previously reached an all-time high of nearly $20,000.
Meanwhile, the S&P 500 is already up 5.11% YTD. That’s about 59x more than what a Marcus Savings account returned over the same period. Marcus is Goldman Sachs’ online lending and retail online banking arm.