One of the largest cryptocurrency exchanges in the world, FTX has been making headlines since quite a few days now.
The crypto exchange has been in news for allegedly strategising to complete a full-fledged acquisition of fintech app Robinhood. On 27th June 2022, Bloomberg reported about the development, stating that the crypto exchange has been internally debating about the acquisition.
However, there haven’t been any formal M&A announcements as of now. So, what has exactly been going on? Moreover, how should you look at these developments? Let’s figure it out.
What’s going on between FTX and Robinhood?
After Bloomberg’s Monday report, the speculations have been rife about FTX moving ahead to buy Robinhood.
What further added fuel to the alleged acquisition news was the SEC (Securities & Exchange Commission) filings disclosing the payments made by FTX to a subsidiary of nearly $650 million, to acquire 56 million shares of Robinhood.
That’d mean around 7.6% of Robinhood’s current stocks. While that purchase would make FTX the third-largest shareholder of the fintech app, there’s no clear indication of a full-blown acquisition.
Clarifications by FTX
Further on the article, there came clarification by FTX. The article itself stated that there are no active M&A talks in place right now.
FTX’s billionaire founder, Sam Bankman-Fried has been quoted as “We are excited about Robinhood’s business prospects and potential ways we could partner with them. That being said, there are no active M&A conversations with Robinhood”.
While there are no official signs of a merger or acquisition in place, this does seem like a strategic investment made by the billionaire into Robinhood. The news report did have its effects on Robinhood’s share prices. After the report went live, Robinhood’s share price surged 18% before halting at the end of the day.
Why would FTX Buy Robinhood?
Even if a straightaway acquisition can’t be guaranteed at the moment, a partnership of sorts seems like a strategic move for FTX too.
As per experts, the association can help FTX acquire new customers in the form of Robinhood’s existing 22 million customers. The cost of acquiring a new customer in the United States is rising constantly, even though the revenue remains the same.
Not only FTX would be able to expand its current 1-2 million user base, it might also be looking at diversifying its user base too. With FTX being a crypto exchange, most of its existing users are professional traders, whereas Robinhood’s retail-based approach might come in handy for FTX to diversify.
Robinhood’s Struggles Continue
Since its launch on NASDAQ in July 2021, Robinhood (HOOD) has been struggling mostly. Currently, it is trading at $8.55 (at the time of publishing), down from its all-time high of $70.94 in August 2021.
The investor confidence has further declined towards Robinhood, as the company is marred by depressed user growth and a dip in trading revenues. Adding to all this is the overall bearish crypto market, creating several causes of concern.
Goldman Sachs recently downgraded Robinhood from Neutral to Sell, leading to a further decline in the already dipping investor confidence.
What’s to look forward to?
FTX has been on a spree of either bailing out companies or buying them out. The company has been spending billions of dollars to acquire other exchanges and/or companies.
The main motive behind doing this seems to be an expansion of FTX’s suite of services that it offers to its customers. The recent investment and some of FTX’s reserves, totalling at around $2 billion might be the reason for the company to go on a shopping spree.
With FTX focusing on expanding its user base by offering more, Robinhood’s struggle doesn’t seem to have an end. The dropping retail engagement coupled with dwindling crypto trading volumes can make things tough for Robinhood. In such a scenario, acquisition or partnership with FTX can definitely help the fintech app to turn the table around for itself.
While FTX would be able to benefit from the 22 million strong user base of Robinhood, the latter could come up with strategies to reinvigorate trust amongst its users.
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