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FTX: Could GameStop's Crypto Partner Acquire Robinhood?

Crypto exchange FTX, which recently partnered with GameStop, is looking to acquire a retail trading platform. Could it make a bid for Robinhood?
  • GameStop has partnered with cryptocurrency exchange FTX for new e-commerce and digital marketing initiatives.
  • FTX is reportedly raising capital for the potential acquisition of a retail trading platform.
  • FTX CEO Sam Bankman-Fried owns a roughly 7.6% stake in Robinhood.
Figure 1: FTX: Could GameStop's Crypto Partner Acquire Robinhood?

Figure 1: FTX: Could GameStop's Crypto Partner Acquire Robinhood?

(Read more from Wall Street Memes: GameStop vs. AMC Entertainment: Which Is the Better Stock?)

Why Would FTX Acquire Robinhood?

Cryptocurrency exchange FTX — which currently is privately owned — is raising capital ahead of a potential acquisition, according to sources close to the company.

Reportedly, the exchange is evaluating several potential takeover candidates. Among the top candidates are companies that operate retail trading platforms. Negotiations are already in the preliminary stages.

FTX CEO and founder Sam Bankman-Fried owns about a 7.6% stake in Robinhood  (HOOD) - Get Free Report. That corresponds to roughly 56 million shares valued at the time of purchase (May 2022) at $482 million.

There is speculation that Robinhood may be an acquisition target for FTX. After all, the commission-free brokerage's focus is on its retail trading platform. And lately, Robinhood has been seriously boosting its crypto efforts.

The company recently launched a no-transaction-fee crypto wallet, on which it is listing the second-largest stablecoin, USD Coin (~USDCUSD) , along with Cardano (~ADAUSD)  and Shiba Inu  (~SHIBUSD) . Currently, you can trade 17 cryptocurrencies through Robinhood.

Can Robinhood Survive on Its Own?

On Robinhood's second-quarter earnings call, CEO Vlad Tenev was asked whether an acquisition by FTX or Charles Schwab  (SCHW) - Get Free Report were in the works.

Tenev promptly replied, "No," saying that he believes Robinhood is in a "great position as a stand-alone company" and that he likes the way things are going.

The CEO also mentioned Robinhood's $6 billion in cash and that he still sees many opportunities in the current market to leverage his company's balance sheet.

But will the commission-free broker be able to continue on its own?

Robinhood has faced many difficulties since its initial public offering (IPO) in July 2021. The company has been burning through cash quarterly, with an operating cash flow as low as a negative $2.1 billion.

Robinhood's stock has fallen by more than 70% since its IPO. And over the last few quarters, the company has reported net losses and a steady decline in the number of monthly active users.

Recently, Robinhood was forced to lay off 23% of its staff to reduce its operating costs.

Currently, the company has a market cap of $8.59 billion, less than a third of FTX's estimated valuation.

Will FTX Acquire GameStop?

GameStop's  (GME) - Get Free Report partnership with FTX was one of the biggest announcements of the video game retailer's second-quarter earnings call.

According to GameStop, the partnership is the result of both companies' commercial and blockchain teams working together to "establish something unique in the retail world.”

In the second quarter (Q2), GameStop launched a digital wallet and NFT marketplace. Both of these launches were seen as important steps toward the company's long-term goal of getting deeper into crypto, NFTs, and Web 3.0 gaming verticals.

FTX said that it looks to learn a lot from the partnership with GameStop. In particular, it likes GameStop's ability to reach mass audiences of retail investors and sees much overlap in the gaming and crypto worlds.

In addition to collaborating with FTX on new e-commerce and digital marketing initiatives not yet disclosed, GameStop will also sell FTX gift cards in its stores.

GameStop currently has a market cap of around $8.03 billion — nearly equal to Robinhood's.

Because GameStop's trading activity is based not necessarily on the fundamentals of the company, but rather on the demand for the stock from retail investors, many smart-money specialists consider the video game retailer's valuation absurd.

This makes an acquisition of GameStop unlikely.

Thus, it's doubtful that FTX would want anything more than a partnership with GameStop, which still has brick-and-mortar stores as its main focus and revenue generator.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)