The valuation of Robinhood, an app which provides cryptocurrency trading services as well as stock trading, is expected to rise to $5.6 billion, a fourfold increase. This has been driven largely by the popularity of the app among millenials. Russian firm DST Global is expected to inject approximately $350 million into the company. This is the same group that led in in the last funding round of Robinhood a year ago when the startup was valued at $1.3 billion.
With the new valuation Robinhood is now among the 15 leading tech companies in the United States despite the company?s flagship product, Robinhood app, having only existed for three years now. In those 36 months Robinhood has gained a user base of four million. Part of the reason why the app has become so popular is that it provide stock trades for free, posing a challenge to discount brokers.
It is however unclear whether the startup will gain the critical mass needed to support premium services with add-ons that include after-hours trading and margin trading. Robinhood makes money through the interest held in the cash accounts of clients as well as selling to market makers the trades of clients.
The median user of Robinhood is aged around 30 and this means they don?t have as much money to spend as older clients who can afford big brokerages. With time Robinhood expects the assets of its younger investors will grow. Robinhood also intends to increase the array of services it provides.
Per Crunchbase Robinhood has so far raised approximately $526 million inclusive of the latest amount from DST Global. Besides DST Global other backers of the fintech firm include Index Ventures and New Enterprise Associates.
At a valuation of $5.6 billion, Robinhood is now worth about 33% of E*TRADE?s value. The current market capitalization of E*TRADE is $15.3 billion. This soaring valuation is driven in part by the view that millenials are going to be lured by discount brokerages in order to participate in hot bets that include weed stocks and virtual currencies. Besides E*TRADE other competitors of Robinhood include TD Ameritrade and Charles Schwab.
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