The dismal performance of Robinhood's stock price since its overhyped IPO in 2021 and its founders' ownership structure suggests a buyout deal with FTX or anyone else may not happen soon.
"I don't think they are actually proactively thinking about doing a deal," JMP Securities analyst Devin Ryan said of Robinhood founders Vlad Tenev and Baiju Bhatt on Yahoo Finance Live (video above). "The stock went public at $36 last year, and we are in the upper single digits today. So we think there is a long ways to go before they would have any interest. And it just gets back to the point that we don't think they are desperate with $6 billion of cash liquidity."
That said, let the deal speculation commence.
Robinhood shares surged Monday after Bloomberg reported that privately-held crypto exchange FTX was exploring a merger with the retail trading platform. No purchase price was speculated.
FTX founder and billionaire Sam Bankman-Fried, who already holds a 7.6% stake in Robinhood's outstanding shares, moved quickly to shoot down the deal chatter. But he didn't rule out a potential partnership between the two platforms.
"We are excited about Robinhood's business prospects and potential ways we could partner with them, and I have always been impressed by the business that Vlad and his team have built. That being said there are no active M&A conversations with Robinhood," Bankman-Fried said in an email to Yahoo Finance.
Should FTX move to land Robinhood, a few obstacles would stand in its way, according to Ryan.
For one, Robinhood's stock price has tanked 74% since its 2021 IPO as retail trading activity has slowed since the peak of the GameStop meme stock frenzy. Robinhood has continued to post steep losses as it invests in new products, and the company recently announced it would fire 9% of its workforce to better align its expenses with slowing sales trends.
In any case, Robinhood co-founders Tenev and Bhatt loom large as major influencers of any decisions at the company.
The pair collectively own all 128 million of the company’s outstanding Class B shares (which are entitled to 10 votes per share as compared to 1 vote per share for Class A shares). That represents 63.5% of the voting power, per Ryan's analysis, and implies the two leaders will have to be supportive of any acquisition.
"Considering Robinhood has not been proactively seeking a partner (to our knowledge), and we think management views its current price as temporarily impaired, we believe a potential acquirer, FTX or otherwise, would likely need to pay a substantial premium to the current price," Ryan shared with Yahoo Finance. "We suspect any potential suitor would understand this dynamic prior to approaching the company, so any further progression of conversations to that level would raise the probability in our mind, but we do not see any likely scenario that this business would sell for a price anywhere close to current levels."