A combination of boredom, lack of dopamine alternatives, stimulus cheques and the gamification of markets led the USA-based online stockbroker, Robinhood, from relative obscurity into a multi-billion dollar empire. This slick operation has amassed an estimated 20 million brokerage accounts and attracted a last-recorded $20bn fair value (even though shares have reportedly traded on the secondary market implying a $40bn fair value – LINK).
Closer to home, the Purple Group’s EasyEquities operation has pioneered both domestic fractional share ownership and mass, low-cost online brokerage for the retail market. While there are fundamental differences between EasyEquities and Robinhood (other than geographic, the most notable is EasyEquities earns off brokerage while Robinhood earns of “order flow” sales, i.e. where they sell your trading data to the highest bidder), the ultimate drivers of these brokerages are actually quite similar: low-cost, easy-access to financial markets with a slight gamification-element thrown in.
Hence, how does EasyEquities stack up next to Robinhood and what can this imply about EasyEquities’ (and, ultimately, Purple Group’s) fair value?
|Last Reported Operating Stats:||Accounts||Annual Revenue||Revenue/Account|
|Robinhood||20 000 000||$682 000 000||$34|
|EasyEquities||1 000 000||R152 459 000||R152|
|EASYEQUITIES (Dollarized)||1 000 000||$10 661 469||$11|
Little surprise that Robinhood is about 20x the size of EasyEquities. Interestingly, they only earn about 3x the revenue per account, thus the revenue generating ability does not necessarily scale up with its incremental size. This also implies that EasyEquities may have room to lift their monetisation of each account, or just that Emerging Market retail investors have less money than Developed Market retail investors…
These rough comparisons are interesting but can we extrapolate a fair value for EasyEquities from this? Absolutely. It will have flaws but we can arrive at an answer using Robinhood’s last reported fair value of $20bn as a yardstick.
Follow the logic here:
- If Robinhood’s and its 20m accounts are worth $20bn, then it is worth $1000 per account.
- If EasyEquities earns c.1/3rd the revenue per account that Robinhood does, then it implies that the business is worth c.1/3rd the value that Robinhood is per account.
- Hence, EasyEquities could be worth c.$313 per account.
- Since EasyEquities has 1m accounts, this implies that it is worth $313,000,000 in total.
- Using a USD/ZAR of R14.30, this implies that EasyEquities is worth c.R4.5bn.
- Since Purple Group owns 70% of EasyEquities, this implies that their stake in this business is worth c.R3.1bn.
- Since Purple Group has c.1bn shares in issue, this implies that EasyEquities is worth about c.300 per Purple Group ordinary share.
There are flaws in this analysis and the data may not be up to date. No argument from my side against those that shoot this matchbox calculation down (although I do challenge to come up with an alternative valuation then).
That said, even if EasyEquities’ fair value of c.300cps per Purple Group share is half wrong (i.e. only worth 150cps), then the fact that Purple Group shares are trading at 130cps implies the share is too cheap.
Oh, and you get the rest of the Purple Group for free…
ORIGINAL ARTICLE APPEARING ON MONEYWEB.