Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

Robinhood Markets  / Equity Capital Markets

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<p>Our base case valuation of Robinhood is implied market cap of US$25.1 billion or US$29.8 per share, which is 25% lower than the mid-point of the IPO price range (US$40). Given the downside risk, we would AVOID this IPO. </p>
<ul><li>Our valuation of Robinhood is based on an EV/S multiple of 10.7x using our estimated sales of US$2.1 billion in 2022. <ul>
<li>The EV/S multiple of 10.7x is based on the average multiple of the comps in 2022.</li>
<li>The valuation multiple is higher than the those of online brokers Charles Schwab and Interactive Brokers Group.</li>
<li>However, it is lower than the valuation multiples of the fintech comps including Coinbase and Affirm.</li>
</ul>
</li></ul>
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Our base case valuation of Robinhood is implied market cap of US$25.1 billion or US$29.8 per share, which is 25% lower than the mid-point of the IPO price range (US$40). Given the downside risk, we would AVOID this IPO. 
Our valuation of Robinhood is based on an EV/S multiple of 10.7x using our estimated sales of US$2.1 billion in 2022. 
The EV/S multiple of 10.7x is based on the average multiple of the comps in 2022.
The valuation multiple is higher than the those of online brokers Charles Schwab and Interactive Brokers Group.
However, it is lower than the valuation multiples of the fintech comps including Coinbase and Affirm.




Insurance & Central Asia-focused Analyst, KT Capital Group

Alec Tseung

Insurance & Central Asia-focused Analyst

<p>Sheerly looking at Robinhood’s recent financial performance, one might conclude it has embarked on an impressive growth journey and could be a recent success story of Silicon Valley.</p><p><strong>The payment for order flow generates the majority of its revenue</strong> as it sells the clients’ orders to the market makers to fill. As such, Robinhood’s revenue still <strong>depends heavily on the users’ trading frequency and volume</strong> even though it doesn’t take any commission out of the trades.</p><p>The company’s <strong>rumored IPO valuation of $40 billion represents a significant premium to its peers</strong>. It is hard to justify such a premium since it is difficult to gauge Robinhood’s future growth which is largely dependent on its users’ trading frequency and volume in the future.</p><p>In addition to the company’s over-reliance on the payment for order flow and its potentially rich valuation, there are also <strong>significant regulatory concerns</strong>. The downside risk is simply too high and outweighs any growth potential the company could still have in the long run.</p>

Sheerly looking at Robinhood’s recent financial performance, one might conclude it has embarked on an impressive growth journey and could be a recent success story of Silicon Valley.The payment for order flow generates the majority of its revenue as it sells the clients’ orders to the market makers to fill. As such, Robinhood’s revenue still depends heavily on the users’ trading frequency and volume even though it doesn’t take any commission out of the trades.The company’s rumored IPO valuation of $40 billion represents a significant premium to its peers. It is hard to justify such a premium since it is difficult to gauge Robinhood’s future growth which is largely dependent on its users’ trading frequency and volume in the future.In addition to the company’s over-reliance on the payment for order flow and its potentially rich valuation, there are also significant regulatory concerns. The downside risk is simply too high and outweighs any growth potential the company could still have in the long run.

Robinhood IPO: Downside Risk Could Outweigh Any Potential Future Upside

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<p><a href="https://www.smartkarma.com/entities/up-fintech-holding-ltd" target="_blank" data-smartkarma-citation="entities:27957:1" rel="noopener">Up Fintech (TIGR US)</a> aims to raise around US$165m via a follow-on offering. This will be the first raising by the company since it was listed in 2019. It comes close on the heels of the US$1.7bn raising by its competitor <a href="https://www.smartkarma.com/entities/futu-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27858:1" rel="noopener">Futu Holdings Ltd (FUTU US)</a> in Apr 2021.</p><p>We covered the IPO across a series of note, links to which are below:</p><ul>
<li><a href="https://www.smartkarma.com/insights/futu-holdings-ipo-quick-note-comparison-with-tiger-brokers-same-market-different-economics" target="_blank" rel="noopener">Futu Holdings IPO Quick Note - Comparison with Tiger Brokers - Same Market, Different Economics</a></li>
<li><a href="https://www.smartkarma.com/insights/up-fintech-tiger-brokers-pre-ipo-quick-note-much-too-reliant-on-ibkr" target="_blank" rel="noopener">Up Fintech (Tiger Brokers) Pre-IPO Quick Note - Much Too Reliant on IBKR</a></li>
<li><a href="https://www.smartkarma.com/insights/up-fintech-tiger-brokers-ipo-quick-take-it-s-not-like-futu-won-t-perform-like-it-either" target="_blank" rel="noopener">Up Fintech (Tiger Brokers) IPO Quick Take - It’s Not like Futu, Won’t Perform like It Either</a></li>
<li><a href="https://www.smartkarma.com/insights/up-fintech-tiger-brokers-ipo-trading-update-first-day-volume-was-higher-than-futu-close-to-qtt" target="_blank" rel="noopener">Up Fintech (Tiger Brokers) IPO Trading Update - First Day Volume Was Higher than Futu, Close to QTT</a></li>
</ul><p>In this note, we will run the deal through our ECM framework and talk about the deal dynamics.</p>

Up Fintech (TIGR US) aims to raise around US$165m via a follow-on offering. This will be the first raising by the company since it was listed in 2019. It comes close on the heels of the US$1.7bn raising by its competitor Futu Holdings Ltd (FUTU US) in Apr 2021.We covered the IPO across a series of note, links to which are below:
Futu Holdings IPO Quick Note - Comparison with Tiger Brokers - Same Market, Different Economics
Up Fintech (Tiger Brokers) Pre-IPO Quick Note - Much Too Reliant on IBKR
Up Fintech (Tiger Brokers) IPO Quick Take - It’s Not like Futu, Won’t Perform like It Either
Up Fintech (Tiger Brokers) IPO Trading Update - First Day Volume Was Higher than Futu, Close to QTT
In this note, we will run the deal through our ECM framework and talk about the deal dynamics.

Up Fintech (Tiger Brokers) Placement - Needs a Large Correction, Just like Futu

Futu Holdings Ltd / Equity Capital Markets

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<p><a href="https://www.smartkarma.com/entities/27858" target="_blank" data-smartkarma-citation="entities:27858:1" rel="noopener">Futu Holdings Ltd (FHL US)</a> aims to raise around US$1.7bn to support its margin financing and other businesses.</p>
<p>We covered the previous placement which took place in Aug 2020 in:</p>
<p><a href="https://www.smartkarma.com/insights/futu-holdings-placement-riding-high-on-momentum" target="_blank" rel="noopener">Futu Holdings Placement - Riding High on Momentum</a></p>
</div><div><p>We also covered the company's IPO in 2019: </p></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/futu-holdings-pre-ipo-great-metrics-but-in-a-commoditised-industry" target="_blank" rel="noopener">Futu Holdings Pre-IPO - Great Metrics but in a Commoditised Industry</a>, </li>
<li>
<a href="https://www.smartkarma.com/insights/futu-holdings-pre-ipo-fy18-updates-and-quick-thoughts-on-valuation" target="_blank" rel="noopener">Futu Holdings Pre-IPO - FY18 Updates And Quick Thoughts on Valuation</a>,</li>
<li>
<a href="https://www.smartkarma.com/insights/futu-holdings-ipo-given-the-team-execution-and-backers-might-be-worth-a-look-at-the-low-end" target="_blank" rel="noopener">Futu Holdings IPO - Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End</a>, and</li>
<li><a href="https://www.smartkarma.com/insights/futu-holdings-ipo-quick-note-comparison-with-tiger-brokers-same-market-different-economics" target="_blank" rel="noopener">Futu Holdings IPO Quick Note - Comparison with Tiger Brokers - Same Market, Different Economics</a></li>
<li><a href="https://www.smartkarma.com/insights/futu-holdings-ipo-trading-update-might-be-trading-a-little-too-high" target="_blank" rel="noopener">Futu Holdings IPO Trading Update - Might Be Trading a Little Too High</a></li>
</ul></div><div><p>In this note, we will talk about the deal dynamics.</p></div>


Futu Holdings Ltd (FHL US) aims to raise around US$1.7bn to support its margin financing and other businesses.
We covered the previous placement which took place in Aug 2020 in:
Futu Holdings Placement - Riding High on Momentum
We also covered the company's IPO in 2019: 

Futu Holdings Pre-IPO - Great Metrics but in a Commoditised Industry, 

Futu Holdings Pre-IPO - FY18 Updates And Quick Thoughts on Valuation,

Futu Holdings IPO - Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End, and
Futu Holdings IPO Quick Note - Comparison with Tiger Brokers - Same Market, Different Economics
Futu Holdings IPO Trading Update - Might Be Trading a Little Too High
In this note, we will talk about the deal dynamics.

Futu Holdings Placement - Very Strong Momentum but Previous Deal Did Nothing

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

<ul>
<li>In the follow-on issue, the primary portion announced by <a href="https://www.smartkarma.com/entities/xp-inc" target="_blank" data-smartkarma-citation="entities:28619:1" rel="noopener">XP Inc (XP US)</a>  is small relative to its current market value (c 1.5%), but coupled with the Itaú partial disposal of a maximum 4.3% stake in XP, it creates a clear share over-hang</li>
<li>In addition, <a href="https://www.smartkarma.com/entities/itau-unibanco-holding-sa-9d47d196-e503-471b-a84e-ca4401033062" target="_blank" data-smartkarma-citation="entities:24550:1" rel="noopener">Itau Unibanco Holding Sa (ITUB4 BZ)</a>’s spin-off of its remaining stake in XP (c 41.2% post follow-on) into single-purpose company named NewCo was approved by its board on 26<sup>th</sup> November, and shares in the forthcoming NewCo are exempt from any lock-up agreement</li>
<li>HoldCo <a href="https://www.smartkarma.com/entities/itausa-investimentos-itau-pr" target="_blank" data-smartkarma-citation="entities:24513:1" rel="noopener">Itausa-Investimentos Itau-Pr (ITSA4 BZ)</a> will become a large shareholder in XP post Itaú Unibanco’s spin-off, and although it has stated that it does not intend to dispose of its stake in the short term, Itausa does not consider the XP stake as a long term, strategic holding</li>
<li>The spin-off, lack of lock-up for spun-off shares and Itausa’s non-strategic classification of its XP holding creates further medium term over-hang for XP shares, in our view, post the follow-on issue; add to this the challenging fundamental outlook (especially related to the IFA “arms race”) and XP’s demanding valuations, it all contributes to our caution on XP shares</li>
<li>We prefer indirect, and diluted, exposure through holdco Itausa, in which we estimate Itausa will have an 15.6% economic stake in XP post follow-on issue and NewCo formation</li>
<li>Risks to our view include better than expected fundamental performance by XP, and less than expected pressure on costs related to incentives for IFAs, which would continue to drive premium growth and justify the premium multiples, and smaller than expected secondary share offerings in XP over the medium term</li>
</ul>


In the follow-on issue, the primary portion announced by XP Inc (XP US)  is small relative to its current market value (c 1.5%), but coupled with the Itaú partial disposal of a maximum 4.3% stake in XP, it creates a clear share over-hang
In addition, Itau Unibanco Holding Sa (ITUB4 BZ)’s spin-off of its remaining stake in XP (c 41.2% post follow-on) into single-purpose company named NewCo was approved by its board on 26th November, and shares in the forthcoming NewCo are exempt from any lock-up agreement
HoldCo Itausa-Investimentos Itau-Pr (ITSA4 BZ) will become a large shareholder in XP post Itaú Unibanco’s spin-off, and although it has stated that it does not intend to dispose of its stake in the short term, Itausa does not consider the XP stake as a long term, strategic holding
The spin-off, lack of lock-up for spun-off shares and Itausa’s non-strategic classification of its XP holding creates further medium term over-hang for XP shares, in our view, post the follow-on issue; add to this the challenging fundamental outlook (especially related to the IFA “arms race”) and XP’s demanding valuations, it all contributes to our caution on XP shares
We prefer indirect, and diluted, exposure through holdco Itausa, in which we estimate Itausa will have an 15.6% economic stake in XP post follow-on issue and NewCo formation
Risks to our view include better than expected fundamental performance by XP, and less than expected pressure on costs related to incentives for IFAs, which would continue to drive premium growth and justify the premium multiples, and smaller than expected secondary share offerings in XP over the medium term


XP (XP US) Follow-On Issue Highlights Over-Hang, Potential for More Share Sales Post Itaú Spin-Off

United States

Interactive Brokers Group, Inc. is an automated global electronic market maker and broker specializing in routing orders and executing and processing trades in securities, futures, and foreign exchange instruments.

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Interactive Brokers Group, Inc (IBKR US)

Robinhood IPO Valuation Analysis

Our base case valuation of Robinhood is implied market cap of US$25.1 billion or US$29.8 per share, which is 25% lower than the mid-point of the...

Douglas Kim

Robinhood IPO: Downside Risk Could Outweigh Any Potential Future Upside

Although Robinhood had an impressive growth in recent years, the downside risk, in relation to its over-reliance on PFOF and the regulatory...

Alec Tseung

Up Fintech (Tiger Brokers) Placement - Needs a Large Correction, Just like Futu

Up Fintech (TIGR US) aims to raise around US$165m via a follow-on offering. This will be the first raising by the company since it was listed in 2019.

Sumeet Singh

Futu Holdings Placement - Very Strong Momentum but Previous Deal Did Nothing

Futu Holdings Ltd (FHL US) aims to raise around US$1.7bn to support its margin financing and other businesses. In this note we will talk about the...

Sumeet Singh

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Robinhood IPO Valuation Analysis

Our base case valuation of Robinhood is implied market cap of US$25.1 billion or US$29.8 per share, which is 25% lower than the mid-point of the...

Douglas Kim

Robinhood IPO: Downside Risk Could Outweigh Any Potential Future Upside

Although Robinhood had an impressive growth in recent years, the downside risk, in relation to its over-reliance on PFOF and the regulatory...

Alec Tseung

Up Fintech (Tiger Brokers) Placement - Needs a Large Correction, Just like Futu

Up Fintech (TIGR US) aims to raise around US$165m via a follow-on offering. This will be the first raising by the company since it was listed in 2019.

Sumeet Singh

Futu Holdings Placement - Very Strong Momentum but Previous Deal Did Nothing

Futu Holdings Ltd (FHL US) aims to raise around US$1.7bn to support its margin financing and other businesses. In this note we will talk about the...

Sumeet Singh

XP (XP US) Follow-On Issue Highlights Over-Hang, Potential for More Share Sales Post Itaú Spin-Off

Post XP's follow-on, we see the spin-off, lack of lock-up for spun-off shares and Itausa’s non-strategic view of its XP shares adding to risk of...

Victor Galliano