NEW YORK, July 2 (Reuters Breakingviews) - Robinhood Markets needs the frenzied equity market it helped create to justify its upcoming initial public offering. The trading platform founded in 2013 by Vladimir Tenev and Baiju Bhatt could seek a $40 billion valuation, which rapid growth make conceivable. But the firm is too vulnerable to speculative trading and to government probes to make it work in any rational market. Robinhood’s revenue in its most recent four quarters clocked in at over $1.3 billion, a nearly four-fold increase compared to the same period a year earlier. Assuming the pace keeps up, revenue could touch $5 billion in the next coming year. Using brokerage Charles Schwab’s (SCHW.N) enterprise value-to-forward sales multiple of roughly 7.4 times, according to Refinitiv, investors can justify the mooted price. But that valuation deserves a big discount. Over 80% of revenue in the first quarter came from payment for order flow, the business line that the likes of Citadel Securities contributes. This revenue may be vulnerable to regulatory intervention. Then there are cryptocurrencies, which contribute to one of the most rapidly growing businesses for Robinhood. It jumped to more than $88 million in the first three months of the year, a more than 20-fold increase compared to the same period the year prior and contributed 17% of revenue in the last quarter. But in the three months ended in March, more than a third of that business came from Dogecoin, the currency originally set up as a joke. Then there are the government probes. Several authorities, including the Justice Department, the U.S. Securities and Exchange Commission and the New York Attorney General’s Office have Robinhood in their sights. The U.S. Attorney’s office that covers San Francisco went as far as obtaining a search warrant to seize Chief Executive Vlad Tenev’s mobile phone. Robinhood said it was also aware of 49 related class-action lawsuits. The company’s legal team includes the former SEC commissioner Dan Gallagher and John White, a former SEC’s official. That suggests Robinhood is putting some serious shields in place to try to deflect any arrows that comes its way. With so much of its valuation riding on speculation, though, there’s only so much fortifying it can do. Follow @rob_cyran on Twitter Follow @GinaChon on Twitter CONTEXT NEWS - Robinhood Markets filed a prospectus with the U.S. Securities and Exchange Commission on July 1 seeking to list shares on the Nasdaq under the ticker “HOOD”. The company’s revenue jumped more than four-fold in 2020, to $959 million. - Reuters previously reported the company could seek a valuation of over $40 billion. - For previous columns by the author, Reuters customers can click on Editing by Lauren Silva Laughlin and Sharon Lam