Robinhood: Crypto is 'a sucker's play,' New Constructs CEO says

New Constructs CEO David Trainer joins Yahoo Finance Live to examine crypto executive Sam Bankman-Fried's FTX platform pursuing a deal with Robinhood, along with the business model of cryptocurrency exchange platforms, and comparisons to the dot-com bubble.

Video transcript

- Robinhood shares are closing sharply higher after a report from Bloomberg says that FTX CEO Sam Bankman-Fried is exploring what it might take to acquire Robinhood. Bankman-Fried is already one of the top shareholders of the brokerage with a 7.6% stake. Let's bring in David Trainer, New Constructs CEO, to take a look at some of this action. How much of a surprise is this to see him stepping out once we already see FTX also becoming a lender for other crypto exchanges?

DAVID TRAINER: Yeah, no, I'm not that surprised. Look, FTX is trying to save themselves by propping up these other zombie businesses. I mean, this is like AOL buying Moviefone, right? I mean, these are just-- because they buy each other for big prices doesn't mean they're worth what people pay. And so yeah, I think FTV is just looking to shore up what is a hole in the hole of its balance sheet.

And you know, Robinhood's a cash-burning machine with virtually no competitive advantage, as we've written before. We were negative on it since the IPO. We've always shot straight with the American public around what kind of business Robinhood is. I mean, it's effectively selling investors on cannibalizing other investors, and crypto's in many ways not too different. So yeah, FTV buying Robinhood, they're just trying to save Robinhood from being a bigger loss on their books than it already is.

DAVE GRIGGS: Why? Why now? Why prop it up at this point?

DAVID TRAINER: Because if it goes to zero, that could have a contagion effect that brings down crypto and all the other kind of meme stocks that FTV is into. So it's about sentiment. It's about superficial headlines, like it has been for most of the last 18 months when it comes to a lot of these IPOs we've seen that came out to great acclaim and are now down 80%, 90%. As long as they think they can keep the appearances up and the narrative going in the right direction, they think they can continue to fool investors into not sending a lot of these stocks to zero.

SEANA SMITH: David, what's it going to take for you to change your mind? I guess, when it comes to Robinhood, what would you like to see their business focus on? Because yes, they haven't been able to engage with users like they were able to during the pandemic. They've seen their revenue drop considerably as a result. So what should they be doing?

DAVID TRAINER: How about making money? Or give us a plan about how they might make money? Let's start with that instead of just adding users because I don't think they've ever made any money, ever generated any free cash flow, even when things were great for them. And I know their margins are highly negative now. And so, you know, they don't have a lot-- that much-- they have a decent amount of cash left on their books, compared to a lot of companies that are on our zombie stocks list. They've got more cash than others, but it's burning up fast. And I know it's about $6 a share, but that number is going down every day that they continue to burn money.

- And when you look at what happened with Celsius, when we look at what's happening with the price of Coinbase with Robinhood, do you expect this consolidation to end in a good place where the market really matures, or is there just, essentially, a danger in giving your keys to your crypto to other platforms?

DAVID TRAINER: I-- look, I think there's a lot of danger here. I mean, the yields that these firms are promising are unrealistic. They're uneconomic. And I think it's a sucker's play. I think a lot of crypto is a sucker's play. Don't get me wrong, blockchain is an amazing technology, but we said the same thing about the internet, right? In the late '90s.

It's an amazing technology, and a lot of the original businesses that were IPO-ed around the tech bubble are no longer around because they really weren't about the internet. And crypto isn't just about-- this isn't the only benefit of blockchain. It is one of many manifestations. And I think unfortunately, it's going to be a big learning phase that a lot of investors are going to have to go through that everything that claims to be a part of blockchain is not necessarily good.

SEANA SMITH: David, what happens if this deal does not go through, if Robinhood is still left out on its own? Is it going to be able to survive?

DAVID TRAINER: It's a good question. I mean, look, I've already mentioned to you, it's a zombie business running out of capital. They'll probably-- you know, if they don't get saved by the FTV white knight, who I mentioned, had a strong incentive to save them, there probably aren't any other white knights, which means they're going to have to potentially go to, I don't know, a Wall Street firm and hope that they'll lend them some money. If not, they go bankrupt.

I don't know about you, but I wouldn't be wanting to write any checks to Robinhood right now. It'd be tough, right? You know, I don't like to loan money to people who can't pay-- who don't make money or businesses that don't make money, right? I'd like to have that-- some path to being able to be paid back, and I don't know if Robinhood can make a really solid case for that right now.

DAVE GRIGGS: Pretty solid case you just made. Appreciate your honesty. David Trainer, good to see you. Thank you.