Robinhood has captured the zeitgeist, but the online finance industry is evolving rapidly around it forcing it will to continue to figure out how to keep more than its fair share. The good news is that while Robinhood's current $8.3b valuation may sound like a lot, it implies a value of roughly $600 per account which is less than half of what Morgan Stanley is paying for E*Trade.
Robinhood’s best attribute for now may be as a volume play, if it could keep growing to millions of more accounts than peers. For example, the firm has added fractional-share trading to help people who just want to put a few dollars to work. The app and its cachet could serve as the gateway to investing for an extremely broad user base, in the U.S. and beyond. The big question is whether such a strategy would work beyond the current market cycle. Historically, big drops from highs have led to long lulls in retail trading. After the dot-com bubble burst, Schwab didn’t return to its peak 2000 trading volume until 2007, according to figures compiled by analyst Christian Bolu at Autonomous Research.