Is Virtu Financial Making Money from Robinhood?

There is a way investors can buy into the Robinhood stock trading fad now. They can purchase shares of Virtu Financial Inc. (NASDAQ: VIRT).

Robinhood is the gamelike trading app that has grown like a weed during the coronavirus pandemic. Robinhood processed 40 times as many trades as Charles Schwab (NYSE: SCHW) in the first quarter of 2020, Substack muckraker Matt Taibbi claims.

Taibbi estimates Robinhood added three million new accounts in the first six months of 2020. In June 2020, Robinhood was processing 4.3 million revenue trades a day, CNBC claims.

How Robinhood Profits from Coroanvirus

Robinhood’s trading volume rose to $180 million in the 2nd Quarter of 2020, Forbes claims. That volume almost doubled from $91 million in the first quarter of 2020 because of coronavirus.

Bloomberg identifies Robinhood as the busiest digital brokerage in 2nd Quarter 2020. Bloomberg Intelligence estimates Robinhood did $70 million more in business than the second busiest online brokerage E-Trade, which handled $110 million in trades in the 2nd Quarter of 2020.

Robinhood critics such as Scott Galloway attribute the app’s success to legions of bored people sitting at home with nothing to do. In addition, Galloway thinks many Robinhood users are sports bettors who had no sports to bet on during the first two quarters of 2020. Remember, coronvarius closed almost every sports league, racing series, and professional fighting venue  during the first two quarters of 2020.

Galloway or Prof G is a professor of marketing New York University’s Stern School of business. He is also a popular podcaster and TV personality.   

How Virtu Financial Profits from Robinhood

Virtu Financial (VIRT)is one of three firms that executes trades for Robinhood, Taibbi claims. The others are Citadel Securities and Wolverine Trading LLC.

To explain Roibnhood does not make the trades its users initiate. Instead, high-frequency traders; such as Virtu, make the trades in the exchanges. Taibbi compares the trades to options.

Interestingly, Bloomberg claims Virtu pays Robinhood for the privilege of processing its trades. To explain, Virtu’s engineers want access to all the trading data Robinhood collects.

Virtu’s engineers hope they learn more about uninformed investors or dumb money from Robinhood. The engineers think that data can help them build better trading algorithms. To elaborate, an algorithm could identify the stocks small investors prefer it could profitably short those stocks.

Virtu is trying to build a better high-frequency trading platform by buying data from Robinhood. However, there is no evidence that trading platform exists or is possible.

Does Virtu Financial Make Money?

Mr. Market thinks Virtu (VIRT) can build that trading platform and algorithms.

In 2020, Virtu’s share price rose from $16.28 on 2 January 2020 to $23.17 on 14 December 2020. Thus, Virtu is a cheap stock but is it a value investment?

Virtu started making money in 2020. Virtu began 2020 with a -$27.37 million quarterly operating loss on 31 December 2019. The quarterly operating income rose to $466.23 million on 31 March 2020 and fell to $252.31 million on 30 September 2020.

Similarly, Virtu’s quarterly gross profit rose from $387.21 million on 31 December 2019 to $892.56 million on 31 March 2020. The quarterly gross profit fell to $459.66 million on 30 September 2020.

Impressively, Virtu’s quarterly revenues rose from $409.65 million on 31 December 2019 to $1.004 billion on 31 March 2020. In addition, the quarterly revenues fell to $656.11 million on 30 September 2020.

Virtu is a Great Growth Stock

Virtu may not be a value investment, but it is definitely a growth stock.

Notably, Stockrow estimates Virtu’s revenues grew by 176.62% in the quarter ending on 31 March 2020. The revenue growth rate fell to 144.51% in the quarter ending on 30 June 2020, and 71.60% in the quarter ending on 30 September 2020.

That growth can help Virtu generate cash. Virtu reported a $717.94 million quarterly operating cash flow on 30 September 2020. Virtu reported a negative operating cash flow of -$15.66 million on 30 September 2020.

Virtu is a cash-rich company

Virtu can generate enough cash to pay off enormous amounts of debt. Virtu reported a quarterly financing cash flow of -$764.89 million on 30 June 2020. The quarterly financing cash flow fell to -$114.32 million on 30 September 2020.

Virtu reported a quarterly ending cash flow of -$82.05 million on 30 September 2020. Virtu only reports an ending cash flow because it pays debts. I think that is a sign of an excellent investment.

Virtu had $2.009 billion in cash and short-term investments on 30 September 2020. Thus I consider Virtu a cash-rich company that is a value investment.

Virtu had Total Assets of $9.443 billion on 30 September 2020. The total assets fell from $10.987 billion on 31 March 2020.

Virtu Financial is a Value Investment

I consider Virtu Financial (NASDAQ: VIRT) a good value investment and growth investment because it is cheap, fast-growing, and cash-rich.

Additionally, Virtu will pay a good quarterly dividend of 24¢ on 15 December 2020. Overall, Virtu offered a forward annualized dividend of 96¢ and an annual dividend yield of 4.12% on 15 December 2020.

If you are seeking cheap and fast growing financial services stock that can profit from app-based investment, Virtu Financial is worth investigating.