This commission-free brokerage nonetheless seems like a flimsy funding.
Webull (BULL -11.79%) went public by merging with a particular objective acquisition firm (SPAC) on April 11. The net brokerage’s inventory began buying and selling at $16 that Friday, however it soared to a document closing worth of $62.90 the next Monday.
After that dizzying rally, Webull’s inventory pulled again to round $23. Let’s assessment Webull’s enterprise mannequin and see if it is the fitting time to purchase or promote its risky shares.
Picture supply: Getty Pictures.
A quick historical past of Webull
Webull was based in 2016 as Hunan Fumi Data Know-how, a Chinese language holding firm backed by Xiaomi, Shunwei Capital, and different non-public fairness buyers in China. Its founder, Anquan Wang, beforehand labored at Alibaba.
In 2017, Hunan Fumi launched Webull as a Delaware-based LLC and opened its headquarters New York Metropolis. Webull subsequently launched its namesake buying and selling app in 2018, and it included itself as a brand new firm within the Cayman Islands in 2019.
In 2022, Webull moved its headquarters to St. Petersburg, Florida, and restructured its enterprise to separate Hunan Fumi, its unique Chinese language holding firm, from the remainder of its rising enterprise. That break up paved the best way for Webull’s current merger with SK Development Alternatives, a SPAC affiliated with the South Korean conglomerate SK Group.
Webull is technically a U.S.-based firm now, however final November a coalition of states attorneys basic launched a probe into its alleged ties to the Chinese language authorities. These allegations might expose Webull to the identical regulatory dangers as different Chinese language-affiliated apps, together with ByteDance’s TikTok and PDD‘s Temu.
How briskly is Webull rising?
Webull is just like Robinhood (HOOD 2.74%). Each firms present commission-free trades for shares, ETFs, choices, cryptocurrencies, and fixed-income investments on their streamlined cellular apps. Nevertheless, Webull claims it serves extra skilled buyers than Robinhood, which carved out its area of interest by locking in thousands and thousands of first-time buyers.
Each firms generate their income with a “fee for order circulation” (PFOF) mannequin that routes their purchasers’ brokerage orders by high-frequency buying and selling (HFT) companies in alternate for commissions for every routed order. Each firms additionally provide paid subscription tiers that supply real-time knowledge and different perks.
Webull operates in 14 markets, and it is a licensed broker-dealer within the U.S., Canada, Hong Kong, Singapore, Malaysia, Japan, Indonesia, Thailand, Australia, the U.Okay., the Netherlands, and South Africa. Robinhood is barely a licensed broker-dealer within the U.S., the U.Okay., and Lithuania.
Webull served greater than 23.3 million registered customers on the finish of 2024, however it had solely 4.7 million funded accounts with $13.6 billion in buyer property. By comparability, Robinhood served 25.2 million funded prospects on the finish of 2024 with $193 billion in property underneath custody. So whereas Webull is extra globally diversified than Robinhood, it is nonetheless a distant underdog.
If we divide their complete property by funded prospects, we additionally see that the typical measurement of a Webull account was solely $2,894 on the finish of 2024, versus a median account measurement of $7,659 at Robinhood. That massive hole signifies that Webull’s prospects aren’t as prosperous as Robinhood’s — regardless that it argues its a platform for extra “skilled” buyers.
In 2024, Webull’s registered consumer base grew 18%, its funded accounts elevated 9%, and its complete property elevated 66%. Nevertheless, its complete income stayed practically flat at $390 million, its working bills rose 10% to $404.5 million, and its adjusted working margin dropped from 13.4% to 4.7%. For reference, Robinhood’s income surged 58% to $2.95 billion in 2024.
The 2 causes to purchase Webull… and the 4 causes to promote it
The bulls may like Webull for 2 causes: It is extra geographically diversified than Robinhood, and it is nonetheless gaining new customers and accounts in these fertile markets.
Nevertheless, the bears in all probability suppose Webull’s inventory will fizzle out for 4 causes. First, its flat top-line progress signifies it is struggling to squeeze extra income from its present customers. Second, it is by no means a very good signal when the underdog is rising slower than a market chief — and Webull’s metrics look grim in comparison with Robinhood’s. Third, Webull seems overvalued. With a market cap of $10.8 billion, it trades at a whopping 28 occasions final 12 months’s gross sales. Robinhood, with a market cap of $37.3 billion, trades at 13 occasions final 12 months’s gross sales. Final however not least, it may very well be hit by extra regulatory probes relating to its hyperlinks to China.
Due to this fact, the explanations to promote or keep away from Webull simply outweigh the explanations to purchase it. Should you’re fascinated by investing in a commission-free brokerage, it makes extra sense to stay with Robinhood than with its smaller and slower-growing competitor.
