Robinhood IPO is just around the corner.
Here’s everything you need to know.
Robinhood IPO: Quick Facts
- Ticker: HOOD
- Offering date (date of first trading): on or about Thursday, July 29, 2021, according to Renaissance Capital
- Listing method: Traditional IPO
- Exchange: Nasdaq Global Select Market
- Offer price: Shares are expected to be priced between $38 and $42
- Shares offered: About 55 million shares
- Link to prospectus
What Robinhood Is Offering
Robinhood, the commission-free trading app that was at the center of this year’s meme stock trading mania, confidentially submitted paperwork for its hotly anticipated initial public offering to the U.S. Securities and Exchange Commission (SEC) in March this year.
The company later made the filing public on Thursday, July 1.
According to its amended S-1 filing with the SEC, Robinhood will issue about 55 million Class A shares at a price of between $38 and $42 on the Nasdaq under ticker “HOOD.” The company could raise nearly $2.2 billion if they sell the shares at the high end of the price.
Existing shareholders, including its CEO and founders, are set to offer a further 2.625 million shares in the IPO, including 703.87 million Class A shares.
Robinhood is targeting a valuation of up to $35 billion. That would give the no-fee trading app a higher valuation than the financial services titan State Street (STT) or the Nasdaq (NDAQ) stock exchange.
Robinhood also said in the filing that it plans to reserve between 20% and 35% of its shares in the IPO for its users, dependent on demand from the users and other investors.
There are 17 banks overseeing the offering, but the main underwriters are J.P. Morgan and Goldman Sachs & Co.
According to its prospectus, the underwriters have an option to buy up to 5.5 million shares to cover any over-allotments.
Robinhood expects to use proceeds from the IPO for general corporate purposes and to repay debt.
Robinhood was founded in 2013 by two former Stanford University roommates: Vlad Tenev, 34, and Baiju Bhatt, 36.
Tenev is now the CEO of the company while Bhatt serves as the chief creative officer. They named the company after the legendary outlaw in English folklore.
Both have long claimed that they were inspired by the 2011 Occupy Wall Street movement and set out to “democratize finance” by making stock trading easy for millennials through an app.
Robinhood brands itself as the pioneer of “free trading.” When a broker offers free trading, it simply means they don’t charge their own fee for helping users to execute trades.
However, it is important to point out that there might still be other fees involved, even if you don’t pay a commission for buying or selling stocks.
Robinhood also has a premium subscription service, known as Robinhood Gold. It has also ventured into other areas like checking accounts and cryptocurrencies.
According to PitchBook, Robinhood’s biggest shareholders include DST Global, Index Ventures, New Enterprise Associates, and Ribbit Capital.
Designed To Disrupt
When Robinhood first launched its app in 2013, offering users the ability to trade ETFs and stocks with no commission fees, it made a bit of a splash.
The Menlo Park, California-based company ended up leading the way, and other traditional brokerages like Charles Schwab and TD Ameritrade were left with no choice but to follow suit.
Since its launch, Robinhood has attracted millions of young traders to the stock market fast, using a sales pitch of zero commissions and account minimums.
The app is not only easy to use but also has an inviting interface. But this has drawn criticism from people who have compared it to a mobile game or a social media app.
Some critics say that Robinhood encourages users to trade more frequently than they should because of the game-like features it has incorporated in the app.
Studies show that excessive trading often leads to worse results for stock traders.
A Quick Look At Robinhood’s Finances
According to the IPO paperwork that Robinhood submitted to the SEC, the company now has 18 billion in assets under custody and a total of 17.7 million monthly active users.
In addition, roughly 18 million people use its trading app to buy and sell cryptocurrencies and stocks.
In the first quarter of 2021, the company generated revenue of $420 million compared with revenue of $96 million a year ago.
Net loss came in at $1.4 billion during that period, versus a net loss of $53 million during the same period last year. Robinhood attributed the massive net loss to the $3.5 billion debt which it raised in February.
For the year ended Dec. 31, 2020, the company posted a profit of $7 million and has recorded profits in two out of the past nine quarters.
How The Company Makes Money
Robinhood derives most of its revenue from order flows i.e., routing trades to high-speed trading firms such as Virtu or Citadel Securities.
These firms then pay the broker a small fee for the shares that are routed and this can add up to millions of dollars when users trade actively.
According to an analysis of company filings by JMP Securities, Robinhood and rivals including E*Trade, Charles Schwab, and TD Ameritrade received about $2.6 billion in payments for stock and option orders.
Robinhood’s Growth: Quick Facts
Robinhood has mentioned the word “growth” more than 200 times in its filing with the SEC. As we mentioned before, the company had approximately 18 million users in the January-March quarter, which represents a 107% increase from the same period a year ago.
According to Matthew Kennedy, senior strategist with Renaissance Capital, first-time investors are likely to stick with Robinhood for a long time.
“What stands out to me is their growth and the fact that customers are first-time investors,” he tells MarketWatch.
Robinhood And The GameStop Saga
Even though Robinhood has grown to become one of the most valuable private companies in Silicon Valley, the app has also endured plenty of challenges particularly in 2021.
At the start of the year, Robinhood was already being forced to raise $3.4 billion of a liquidity crisis caused by the “meme-stock” trading frenzy that saw many retail traders pile on GameStop (GME) and other stocks with high short interest.
Consequently, the company temporarily restricted users from selling certain meme stocks, a decision that triggered a huge backlash from its users and some lawmakers on Capitol Hill.
Robinhood users accused the company of siding with Wall Street elites at the expense of casual traders.
Some users also joined a class-action lawsuit against the company, saying it manipulated the stock market by restricting certain traders, thus causing them to incur losses.
In December 2020, Robinhood was also slapped with a $65 million fine which the company paid to the SEC for misleading users about how it generates its revenue.
SEC officials said that between 2015 and 2018, the broker did not fully make it public that it was getting paid to route order flows to market makers or that it was executing customer orders at prices lower than of rival brokers.
Despite its fair share of controversies, Robinhood is clearly a great company.
It is one of the most popular apps to have emerged in recent years that try to reinvent the previously unadventurous world of stock trading for the smartphone era.
Its promise of zero-commission stock trades has helped the company to grow its subscriber base and valuation.
As Robinhood now prepares to hit public markets after months of teasing investors, it looks poised to grow with the brokerage industry.
But most traders would be well-advised to tread cautiously, watch the performance of the company, and – if interested – wait for a more attractive entry point.