Robin Hood Market- Robbing the investors to get rich?
Robbin Hood Market, the US based online share buying platform is a company not to be ignored. The brand name is clever and in time, I hope it does not turn out to be an investment nightmare. You may remember the film about the legend of Robin Hood- the prince of thieves.
The original Robin Hood
The story of the real Robin Hood was about the legendary outlaw that roamed the British countryside with his gang of merry men in the 13th/14th centuries. The story has been captivating people for centuries . It is not difficult to imagine how the original Robin Hood and his men became a thorn on the side of the Sheriff of Nottingham in the UK (the local area where they lived). The men were tried to correct an injustice done to them by the seizure of their properties. The courts were unable to help, so they took the laws into their own hands. This was 700+ years ago.
They did what?
Robin Hood and his men were able to carry out their acts of robbing the rich because they gave some of their loot to help the poor people of Nottingham. In return, the people protected them from the law and their legend grew as they got more supporters.
Robin was also deadly with his bow and arrow. The weapon at the time.
The link to Robin Hood Market?
Now to the story of Robin Hood Market( RHM); the company and the 21st century. RHM issued its initial IPO in July 2021 raising nearly $2 billion from investors. The share price at IPO was $38 with a capitalisation of nearly $29b. Fast forward January 2022 and the share price had plunged 69% to around $12 by close of play on the 28th January 2022, but as I was writing this, the share price jumped to $14.65 on the 1st February 2022. But for me, the fundamentals have not changed.
RHM revenue grew quickly, but services fell, complaints followed from unhappy customers. To avoid further damage to it reputation, the company recruited more staff and operational costs increased by 162% in one year.
And the problems?
Since you asked. Well, revenue increased in FY 2021 by 89% from FY 2020, so that is great news, but the bad news, loss increased to $3.7 billion against a net income of $7m in FY 2020. That is just massive. Right?. One would have thought that the biggest challenge for RHM would have been in FY 2020. There was global lockdown, interest rate was very low and people poured money into the stock market for better returns.
And so what?
My concern for RHM though and the reason I will not be investing for now is that despite the challenges to its numbers, share related compensation by the company was $1.6b in 2021 ($318m in Q4 of that year alone) against $24m in FY 2020. Yes, you heard right an eye watering $1.6 billion of shares to themselves.
That is just pure greed for a company that shareholders are still waiting to see result. This is the reason I am a fan of the great Warren Buffett. He has kept things simple over so many years. We do what we do for the love of it rather than to amass wealth. This singular act by the RHM’s board of directors for me shouts like ‘are they trying to rob the poor investors’ so that they can be rich? I will not be surprised if they start selling their shares and the company nosedived into bankruptcy.
Lack of Corporate governance
New companies tend to appoint board members with no idea of the feelings of the investors to their board. We know big names do not matter on the board. These board members should have some teeth. How do you justify $1.6b of compensation for failure. What will they get when the company start to make profits?. I will await their annual report
Having said that, the company has a lot of supporters including the great investor, Cathy Wood, who despite the bad news used the opportunity to buy even more shares in the company. A wonderful vote of confidence to the directors of RHM. The board has some impressive people on the board, but we know that does not guarantee effective monitoring of the activities of new companies. Remember Elizabeth Holmes of Theranos was able to fool several high powered executives through manipulation and her wonderful personality.
My investment philosophy though is never about investment returns only. I am all for compensating people for their work, an increase in revenue followed by a massive loss is not a good enough reason or a massive award of shares to the tune of $1.6b. Directors need to be compensated in line with shareholders’ wealth. Compensation needs to be linked to profitability and share price. The board cannot reward failure. So at this point, like the legendary dragons on the BBC show, I have to say ‘I am out’.
Let me know your thoughts.
There are some companies still doing very well. Apple’s result is still mind blowing and I am eyeing Apple closely. Facebook (Meta) at $300 ( January 2022) is also looking good. I missed the chance to buy shares in the company in 2012 when the price was a sniff at inception on the 18th May at $38 or even at $135 in February 2017.
Did you miss any great opportunities in the past?