Robinhood (NASDAQ:HOOD) has revolutionised the online brokerage industry. The company was founded in 2013 and went public via an IPO in July 2021, falling by 8% on its first day of trading. But since then, the Robinhood share price has propelled itself. And has hovered within the region of $33.25 and $85. 

How Robinhood revolutionised the online brokerage business

Before the emergence of Robinhood, the cheapest online brokers charged commissions within the range of $5 to $8 for trades executed on their platforms. 

Robinhood revolutionised online trading and investing by introducing commission-free trades. What’s more, it greatly simplified the means of getting started for beginners. The signups process is seamless and can be completed within five minutes. And since it doesn’t have any minimum balance requirements, it proved immensely popular with individuals that don’t have a large amount of capital to invest.

But beyond simplicity and a solid user experience, the platform continues to innovate new opportunities for its users. Most recently, it has introduced its IPO Access feature. This now enables retail investors to participate in IPO’s that have historically been exclusive to large financial institutions.

Combining all this functionality with strong signup incentives, like free shares when inviting friends and family, more than 100,000 users joined the platform the first month after launch. And by 2018, it surpassed its competitor E-Trade, with more than four million accounts. 

That number has since exploded. Combining the 2020 lockdown periods and sudden rise in cryptocurrency prices, the demand for a reputable brokerage platform surged. Today, Robinhood serves over 21 million users.

Robinhood 2021 Q2 financial reports

The firm recently published its latest set of results, which were a bit of a mixed bag. Revenue was up by 131%, reaching $565m. This was driven mainly by $451m of transaction-based income, which increased by 141% compared to a year ago.

That’s undoubtedly some impressive growth. But the same can’t be said for Robinhood’s pre-tax profits. The company reported a $502m loss versus a gain of $58m in 2020. Most of this decline is down to convertible notes and warrant liabilities rather than any sudden rise in operating costs. In other words, it’s a one-time expense. So, while it isn’t a pleasant sight, I’m not overly concerned about the loss.

Risks that lie ahead

The online brokerage industry is a very competitive one. Though Robinhood had a breakthrough with its unique business model at the time of its launch, things have changed. Besides new fintech companies, industry giants like Charles Schwab, TD Ameritrade, and E-Trade offer commission-free trading. 

What’s more, Robinhood has a limited operating history which makes it challenging to evaluate for long term investors. And it is also facing several regulatory scrutiny and lawsuits. It was recently fined $70 million for misleading customers and system outages. 

Conclusion

Robinhood’s growth within a short period is awe-inspiring. The question is, can it will maintain this growth rate? Only time will tell. But personally, I think it can. Therefore I am considering adding this business to my portfolio.