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The Growth of Robinhood and What It Means for Brokerage Stocks

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E*trade (ETFC - Free Report) and TD Ameritrade (AMTD - Free Report) are household names in the finance space which investors are likely familiar with. Both are online brokerage firms that have been industry leaders for a long time, initially going public in the mid-90s. However, there is a new upstart challenger in town, called Robinhood, which E*trade and TD Ameritrade may have to watch out for.

Robinhood is a mainly mobile-based brokerage firm that individuals can use to buy and sell securities without any commission.  Although there aren’t any fees for users, unlike with E*Trade and TD Ameritrade, the service doesn’t provide high-end analytical tools or research—as those two do.

Instead, Robinhood’s aim is to make trading as accessible and convenient as possible, especially for millennials. The company’s website, Robinhood.com, even states that the app is, “fast, dead simple, and just works.”

The app’s easy-to-use nature likely makes it not as intimidating for newer investors as E*Trade or TD Ameritrade might be.

Four cryptocurrencies, including bitcoin, can also be traded on the platform. The ability to trade crypto, along with being free and uncomplicated, all make Robinhood immensely appealing to the younger demographic.

The Growth of Robinhood

The product first started in 2013 with just a waiting list for users, and in only one month there were already 100,000 people that had signed up. Interest only continued to grow, and in 2015, the firm officially publicly launched the app on iOS.  

Robinhood’s rise never slowed down, and by 2017, the platform reached a major milestone of two million users

Since then, Robinhood has doubled its number of accounts to four million people, and in May, the firm reached a private valuation of $5.6 billion. It even passed E*Trade in terms of users earlier this year, only further establishing the relatively new company as a major player in the financial services industry.  

Should E*Trade and TD Ameritrade be Worried?

While at first glance it may seem like the brokerage industry is about to be flipped upside down because of Robinhood, the performance of brokerage stocks hasn’t shown that so far. Since the Robinhood app launched in March of 2015, E*Trade stock has more than doubled, while TD Ameritrade has grown by over 46%.

E*Trade, especially, seems to be heading in the right direction and should maintain the growth it has experienced. The Zack’s Consensus EPS Estimate for 2018 is currently at $3.63 per share, which would represent growth of 66.75% from the prior year.

E*Trade has also seen only positive estimate revisions for its soon-to-be reported quarterly earnings in the past 90 days. Those actual results are due out on July 19.

E*Trade and TD Ameritrade may not be that affected by Robinhood because they aren’t entirely in direct competition with each other. While Robinhood tends to be directed more towards millennials who prioritize simplicity and ease, there will always be people that want advice and a more hands-on approach to investing.

Furthermore, not all young people simply gravitate towards what is the easiest. Many are crippled with student debt and other financial issues that put them in a position where they need actual financial advisors. They aren’t looking for how they can invest their money the fastest, but instead for the most effective method.  

The more traditional brokerage companies can also even learn from new start-ups like Robinhood. E*Trade already allows for bitcoin futures trading, while TD Ameritrade recently launched a competition with a $100,000 prize to 3 people that can help develop AI tools for them. Both are clearly initiatives tailored towards the younger generations of investors.

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