Robinhood SPAC Rival Makes Tough U.S. Trade

A SPAC rival to online brokerage Robinhood is making a tough U.S. trade. Israeli firm eToro will go public on the Nasdaq via a blank-check firm with SoftBank and Third Point as backers. Its established access to cryptocurrency means the $10.4 billion equity valuation can be justified. But growth depends on the U.S. market, which is crowded, and regulatory scrutiny is ramping up.

EToro is the latest foreign startup to take advantage of the booming U.S. special purpose acquisition company craze. It said on Tuesday that it is merging with FinTech Acquisition Corp V, a SPAC run by Betsy Cohen. The deal includes a $650 million investment from Masayoshi Son’s Vision Fund 2, Dan Loeb’s Third Point, and Fidelity Management.

Unlike other SPAC listings with little or falling revenue, eToro has a proven business. It has almost 20 million users, nearly double the number it had at the end of 2018, and is roughly the same as Robinhood. Unlike Robinhood, which makes most of its money from payments for trade order data from market makers, eToro mainly makes money from the spread on the sale and purchase price of trades on equities, cryptocurrencies and other assets.

The trouble is its revenue can be lumpy. Though it increased by 2.5 times in 2020 to $605 million, that’s compared to 2019 when sales fell more than a third after bitcoin’s rout. Even so, the company’s valuation has some margin for error. The enterprise value, just under $10 billion after accounting for cash, is around 16 times trailing sales, compared to about 70 times for cryptocurrency exchange Coinbase Global.

Its biggest business is in Europe, too, which makes the United States an area for growth. That is both a blessing and a curse. Robinhood’s success in attracting new traders suggests the market is ripe for others. Yet GameStop’s roller-coaster stock ride earlier this year caused an outcry in Congress, while Gary Gensler, who has been tapped to lead the Securities and Exchange Commission, has promised a thorough review of online trading platforms like Robinhood.

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