Robinhood Acquisition? 👁
Robinhood’s market cap is currently $12bn. With 17.3M customers, that means that each RH customer is priced at $700. By comparison, some of the largest brokerages out there spend north of $1,000 to acquire an active user. Granted, the portfolio of the average RH user is $4k, a tenth of the mean Schwab account. There have been many acquisitions in the space recently, tastytrade = $1bn, Wealthfront = $1.4bn and Interactive Investor = £1.49bn, all in the past 2 months! Could Robinhood be next?
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For this week's community highlights, we look at Apple's insane Q4 earnings, JP Morgan's support for female- and minority-owned small businesses and the uncertainty of earnings season. We cover IG Group's acquisition of tastytrade in our M&A Deal of the Week and in our latest podcast, we speak to Anagh Tiwary, an Investment Associate at Antin Infrastructure Partners.
For non-traditional finance backgrounds, does anything other than STEM lead to success? Vote below in our poll!
Micro-businesses make up more than 90% of all firms and most employ nine or fewer employees, of these businesses 21.8% are female-owned and about 20% are owned by minorities. JP Morgan recognised that female- and minority-owned small businesses were disproportionately affected by the COVID-19 pandemic; the company decided to take action. JP Morgan launched an SBA Micro-loan program targeted at women, minorities and low-income business owners which provided up to 50k to help small businesses start up and expand.
Apple has recently posted a revenue of US$123.9 billion in the fourth quarter of 2021, which is the company’s highest revenue in its 46-year history. This record was reached after an 11% climb in sales from the previous quarter, with the iPhone seeing a 9% climb from the same quarter the previous year.
Companies, such as Volvo, have reported mixed Q4 2021 results. Many reported great results and a good outlook. For industrial B2B companies, such as Sandvik AB, the ongoing inflation is not a problem, because they manage most of the time to pass on increased input prices in the form of higher sales prices. The only real concern with regards to the inflation pressure in the industrial economy is the risk of increased salary expenses, which may reduce profits.
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IG Group acquires tastytrade for $1 billion
IG Group Holdings plc (LON:IGG)
- IG Group is a world leader in derivatives trading and an established member of the FTSE 250. It is the world’s largest provider of CFDs and a global leader in forex derivatives.
- Established in 1974 as one of the world’s first providers of financial derivatives to retail traders, it launched the world’s first online and iPhone trading services.
tastytrade (privately held)
- Based in Chicago, IL and founded in 2011, tastytrade is a platform for retail investors. The company provides differentiated financial content, retail trader education and brokerage services.
- The company was founded and is led by the entrepreneurial management team who previously created the highly successful options trading platform, thinkorswim, acquired by TD Ameritrade in 2009.
- The US options and futures market is larger than the global CFD/FX and European Turbo markets combined, boasting an estimated 1.5 million retail traders. The combined business is well-positioned to take advantage of the exceptional structural growth of self-directed investing in the US.
- Both IG and Tastytrade share the same client demographic of self-directed retail traders. In the long term, the combined company’s larger set of derivative product offerings is expected to increase retention rates and revenue per client.
- Tastytrade’s revenues grew at a CAGR of 49% between 2018 and 2020, and active accounts grew at a CAGR of c.64% during the same period, reflecting its robust and differentiated proposition within the expanding US options and futures market, and represents clear financial benefits to IG shareholders.
- The transaction is made up of $300 million in cash and the issuance of 61,000,000 new ordinary shares in IG Group to tastytrade shareholders.
- The management teams for IG and tastytrade will remain in place, but key tastytrade shareholders including Tom Sosnoff (Co-CEO, tastytrade) have joined the IG senior leadership team while continuing in their current roles. These executives will collectively own approximately 5.7% of the enlarged share capital of IG.
This week we are joined by Anagh Tiwary, an Investment Associate at Antin Infrastructure Partners.
This episode covers:
- The transition from civil engineering degree at MIT to financial services
- Acquiring companies within the infrastructure industry
- Benefits of working in small deal teams within private equity
- How to value private companies
- Infrastructure landscape and the emergence of renewables
$DIS - The Walt Disney Company
Disney, founded in 1923, operates together with its subsidiaries as an entertainment company worldwide. Organised into 2 segments: Disney Media and Entertainment Distribution (DMED); Parks, Experiences and Products (PEP). Acquired Twenty-First Century Fox in March 2019, which increased its ownership share of Hulu to 67%.
Significant existing market share in studio entertainment segment augmented by the acquisition of Twenty-First Century Fox - Disney or its subsidiaries have distributed 5 of the top 10 grossing movies of 2021 so far. This exemplifies Disney’s large and growing command of the studio entertainment industry and its capacity to dominate the box office for the foreseeable future. This control of the industry will compound as a larger portion of talent is regularly employed by Disney.
Market currently reacting too strongly to Disney+ subscriber numbers and failing to account for studio entertainment segment - Disney missed analyst estimates of 109mm paid subscribers to Disney plus by end of Q2, having only 103.6mm. Disney’s stock lost almost $10 per share in the week following this subscriber growth miss. Disney’s business is not primarily reliant on Disney+, but rather its broader creative assets and theatrical releases; the fall in subscriber growth has coincided with a return of consumers to theatres and to amusement parks, both larger shares of Disney’s business
Catalysts - 2021 Annual Results: Focusing on PEP revenues and expecting irrational market reaction to Disney+ numbers. Return to theatres: Climbing box office revenues and ticket sales will signal improved revenue in advance of earnings announcements.
Risks - Regulatory Risks: Disney’s market share could attract regulatory attention, especially its relationship with distributors. COVID Resurgence: Disney’s PEP operations and its theatrical release segment are both threatened by future restrictions.
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- Salman @ Finance Focused