Crypto trading slump weighs down HOOD earningsOnline brokerage Robinhood releases its third quarter earnings, which are brought down by a sharp decline in crypto trading on the platform, sending shares sinking over 10% in after hours trading.
Shares of Robinhood lost ground in after hours trading on Tuesday after the popular platform released its second earnings as a public company, which came with a huge miss on revenue expectations and disappointing guidance. Robinhood reported losses per share of $2.06 on revenues of $364.9 million, missing on both ends compared to expectations of $0.67 in losses per share on revenue of $423.9 million. Average revenue per user actually decreased 36% to $64, and funded accounts fell to 22.5 million with only 660,000 new accounts opened – compared to 5 million in the second quarter, there’s been a clear decrease in trading demand post-pandemic.
While revenue was up 35% from the same period the year before, the numbers were way below expectations thanks to a dramatic drop in crypto trading activity in the third quarter. Crypto transactions brought in only $51 million in revenue for Q3, down a whopping 78% from the quarter before as people returned to their post-pandemic norms and the retail trading boom sizzled out after an unprecedented first half to the year. Robinhood execs have said that the Q2 boom was unsustainable anyway, and going forward the company is looking for more sustainable and solid growth. Robinhood CFO Jason Warnick said:
Q2 was kind of one of those idiosyncratic market events where there’s this massive interest specifically in doge. We love it when those moments happen. It’s a great way to bring a lot of new customers onto the platform. But we’re really thinking about investing in crypto over the long term. And so it’s you know, frankly, it’s gonna be impossible for us to accurately predict ... revenue on a quarter-to-quarter basis.
Going forward, the company said that it forecasts revenue of less than $325 million for the fourth quarter, saying that the pressure from this quarter is likely to continue on through the end of the year. Mike Bailey, an analyst at FBB Capital Partners, said in a note to clients, added his two cents:
If this quarter is a hint of what’s to come, in terms of volatility, I would expect sentiment and the valuation multiple to drop. The Robinhood sales miss contrasts with the more favorable trading revenue for the big banks and brokers, which may have led investors to anticipate higher trading volumes for Robinhood.
Prices spiralled down over 11% in Wednesday morning trading.
Illustration by TradingView
A hungry horde of crypto tradersRobinhood’s crypto wallet proves itself as a feature, with over one million users already eagerly waiting to sign up.
In September, online brokerage Robinhood officially announced it will be taking crypto wallets mainstream and offering the feature on its platform. The move will allow customers to own and transfer their crypto and use it to pay for goods and services, and puts Robinhood in competition with more established platforms like Coinbase (COIN). The new offering is clearly a popular one, and CEO Vlad Tenev said on Thursday that the waitlist already has over one million crypto fans hungry for access to a digital wallet. Tenev said:
We're very proud of our cryptocurrency platform and giving people more utility with the coins they have. We rolled out our wallets waitlist. A lot of people have been asking for the ability to send and receive cryptocurrencies, transfer them to hardware wallets, transfer them onto the platform to consolidate and the crypto wallets waitlist is well over a million people now.
Is Robinhood making trading into a game?The Securities and Exchange Commission gives a hint that it’s not yet done pursuing Robinhood’s payment for order flow, saying the practices turn trading into a game.
The Securities and Exchange Commission released its long-awaited report on GameStop’s (GME)
meme stock adventure earlier this year, which found that the U.S. markets functioned well during January's volatility, and short selling was not the main cause of the unprecedented rise in the meme stock. However, there was some potentially bad news for trading platforms like Robinhood, which get revenue through controversial payment for order flow practices. The regulator says that such practices are aiming to turn trading into a game to attract more retail traders, not helped by Robinhood’s platform design, which is filled with game-like features and animations. SEC officials said:
Payment for order flow and the incentives it creates may cause broker-dealers to find novel ways to increase customer trading, including through the use of digital engagement practices. Consideration should be given to whether game-like features and celebratory animations that are likely intended to create positive feedback from trading lead investors to trade more than they would otherwise.
Robinhood has previously called the SEC “draconian” for its views on how its platform should function.
Early investors get the green light to dump sharesThe Securities and Exchange Commission gives certain early investors of Robinhood the green light to dump their shares.
Robinhood got a lot of people angry in August when an SEC filing announced that early shareholders had applied to sell up to 97.9 million shares, a sum worth about $6 billion at the time, along with a note that the company wouldn't receive any proceeds from the sale. The news sent prices plummeting 28% in one day, and has been weighing down the stock ever since. Things could be about to get worse now that the SEC has officially authorized certain early investors to sell a portion of their investment. JPMorgan Chase & Co. analysts Kenneth Worthington and Samantha Trent said:
Significant amounts of Robinhood shares will be unlocked in the coming months, a normal course following an IPO, but a course that we see potentially further pressuring Robinhood’s share price.
J Lee / Unsplash
Robinhood scrambles for a stock sale as it faces SEC crackdownThe Securities and Exchange Commission (SEC) continues to come at Robinhood and its payment-for-order flow, which is its primary source of revenue in lieu of taking commissions on trades. The online brokerage, which was one of the winners of this year’s meme stock madness, is having the face the potential consequences of such a measure, and is scrambling to get approval from the SEC for its previously announced shareholder stock sale so that it is able to bear the financial weight of the clampdown.
It’s not just the looming SEC ban that is weighing down the stock though, which ended Friday down over 50% from its post IPO high at $1.78, and the company is also facing a change in the trading environment as the world has returned to reality after COVID. Mirabaud tech analyst Neil Campling wrote:
We can’t help wonder if the combination of the end of benefits, the return to work and the return of live action sports are all conspiring to hurt the ‘3 R’ (retail, Robinhood, Reddit’ brigade)?
Robinhood hangs up a warning signRobinhood isn’t taking its unwanted regulatory attention lying down, and the broker has just warned regulators that changing its rules of engagement will lead to significant legal and financial repercussions.
Online broker Robinhood is fighting back at Securities and Exchange Commission (SEC) attempts to increase oversight over the platform, warning the regulator that imposing new rules on the brokerage will incur a heavy legal burden and could be rejected by U.S. courts. Robinhood Financial President David Dusseault wrote in a 27 page letter to the SEC:
The bottom line is that additional regulation in this area will undoubtedly raise significant legal issues.
Robinhood ups its customer service gameRobinhood finally brings out a long-overdue phone support service for its users after accusations of poor customer service.
After years of complaints regarding its customer service processes – which, before this, only included an option to email the company – online broker Robinhood is rolling out an on-demand phone support line. Robinhood is the first crypto exchange to launch this service, and the company hopes it will encourage first time traders to join its platform. Robinhood crypto lead Christine Brown said:
By being the first to offer this service, I think we’re further reducing the barriers that a lot of our users might think of when they think of crypto trading. I think a lot of people today think that the crypto exchanges are very hard to onboard onto… and god forbid, you ever have an issue, email support — let alone phone support — is scarce.
The stock ended Tuesday up 2.64%.
Luke Southern / Unsplash
Can Robinhood maintain momentum?Meme stocks took the world by storm earlier this year, and suddenly everyone and their dog was trolling Robinhood’s platform for the next big short squeeze. Since then though, the COVID restrictions around the world have lifted and people are spending their time in other ways, and Robinhood has lost some of its loyal band of online followers. The platform has seen its user metrics and app downloads plummet during Q3 – app downloads, which are a good indication of account opening, have fallen 78% in the third quarter according to analysts, and its daily active users count has lost 40%. Analysts wrote:
Robinhood is particularly dependent on transactions for revenue, the decline in DAUs may have a more pronounced negative impact.
The decline in activity is expected to impact the online brokerages share price, and JP Morgan analysts see its value losing 20% by the end of 2021, writing:
We do not see growth as sustainable and we question the ability of the company to generate competitive margins.
Prices ended Thursday down 2.43% at $42.08.
Robinhood gets its dirty laundry aired in publicA lawsuit brings to light new documents that show internal chats between execs at Robinhood as the company grappled with the GameStop saga earlier this year.
This year's meme stock madness has been unprecedented, and execs at companies that facilitated the historic short squeeze (like Robinhood) had to make some quick decisions on the fly. One of those decisions was to halt trading on January 28 for popular meme stocks like GameStop (GME) – but that meant a lot of people suddenly missed out on all the fun, and some of them are now suing Robinhood for damages. The lawsuit has brought to light new internal documents from that time, and it turns out things aren’t looking so good for the popular brokerage. Robinhood Chief Operating Officer Gretchen Howard apparently called the situation a “major liquidity crisis” despite CEO Vlad Tenev claiming exactly the opposite back in January. Its director of engineering also said in Slack messages:
This clearing thing seems pretty scary to me – I would say this is our biggest fire right now. In the worst case scenario we max out our credit lines and they liquidate our positions.
Nobody likes their dirty laundry aired, and prices ended the day down 2.24%.
Robinhood gets rich on new crypto wallet featureThe rumors are true: Robinhood will officially start offering crypto wallets on its platform, taking its product offerings up a notch.
Users found clues that online brokerage Robinhood has begun testing a new feature that traders have been eagerly waiting for – and the brokerage has officially announced it will be taking crypto wallets mainstream and offering the feature on its platform. The move will allow customers to own and transfer their crypto and use it to pay for goods and services, and puts Robinhood in competition with more established platforms like Coinbase (COIN). Aparna Chennapragada, Robinhood's chief product officer, said:
This is the natural next step for us when we think about democratising finance for all, being able to have a lot more people from a lot of different contexts participate in this emerging market, and wallets are the key.
The stock lifted just under 11% for its market cap to top $40 billion, closing at its highest price in nearly a month at $46.88.
Who will win the U.S. market?Payments start-up Revolut is taking on Robinhood with plans to offer commission-free retail trading in the U.S.
Robinhood is set to face some new competition in the U.S. retail trading market, where so far it pretty much dominates. U.K.-based fintech Revolut has received U.S. regulatory authorization to operate as a broker-dealer in the U.S. The digital bank will offer retail traders access to cryptocurrencies, stocks, and EFTs on its app, which takes no commission and has no minimum investment amount. Revolut also has plans to offer a credit card to U.S. customers by next year, which will make it a more all-encompassing service than Robinhood offers. Popular European online broker eToro also launched in America in 2018, and has plans for a U.S. IPO in the works – so competition is definitely heating up.
Robinhood regained all of its Evergrande-induced (3333) losses on Tuesday, ending the day up just under 4%.
Stephen McCarthy / Wikimedia Commons
Robinhood starts testing a crypto walletRobinhood traders are eager for a crypto wallet feature, and fans find clues that the brokerage could be giving the people what they want.
Users found clues that online brokerage Robinhood has begun testing a new feature that traders have been eagerly waiting for – a crypto wallet, which will make it easier to send and receive digital assets.
Robinhood gained just over 2% in late trading after the news hit, but lost those gains to ultimately close the day down just under 4% on the back of a Evergrande-induced broader market sell-off.
Robinhood goes on a campus tourRobinhood is going on a tour of colleges across the country in a move to attract some young and fresh retail traders.
Online brokerage Robinhood sets off on a nation-wide marketing campaign, targeting college students and trying to bring them over to the trader side of life. Retail trading has popped off this year, and Robinhood has been one of the biggest beneficiaries of the meme-stock madness. Since the pandemic has lifted though, people are back out in the world and trading activity has slowed down – the brokerage already warned that new account openings will decline in Q3 – so Robinhood's new marketing push is looking to keep activity going.
Austin Distel / Unsplash
Growing the HODL army with auto-renewalsRobinhood is delving further into the world of crypto, bulking up its offerings with a new automatic renewal service.
While Robinhood isn't primarily focused on crypto trading, digital assets brought in 51% more revenue in the second quarter compared to the first, and its latest offering might send that number soaring. The online broker has just introduced crypto recurring investments, which lets you automatically invest in cryptocurrencies on a regular schedule.
The account wont sell any stocks, but is aimed at steadily building your crypto portfolio through the dips and lifts. There are already a massive number of HODLers out there, and it looks like there’s about to be a whole lot more.
Image: Know Your Meme
Cathie Wood calls the SEC's bluffFamed stock-picker Cathie Wood says Robinhood’s payment processes are too good to actually change much.
The SEC continues to come at Robinhood and its payment-for-order flow, which is its primary source of revenue in lieu of taking commissions on trades. The brokerage recently spoke out against the “draconian” idea of banning the system, and Ark Invest’s Cathie Wood called the SEC's bluff this week by pointing out that the processes are just too beneficial for all sides to actually do much about:
We're looking at the payment-for-order flow controversy, we know that Chairman Gensler at the SEC is looking at that. That's a large percentage of Robinhood's revenues. But we actually think that not much is going to change there, because the system has been so good from an execution point of view for the end investor. So we'd be surprised to see a lot change on that front.
Robinhood speaks out against “draconian” SECRobinhood is looking at taking legal action against the Securities and Exchange Commission (SEC), calling the whole thing “pretty draconian” after its chairman made it clear that banning its payments processes is still on the cards.
Last week, SEC head Gary Gensler warned that the SEC is still contemplating a ban on Robinhood’s payment for order flow (PFOF) practices, which are its primary source of revenue in lieu of taking commissions on trades. Robinhood will certainly take a hit if the process is banned, and says it would go so far as to sue the regulatory agency if the ban goes ahead. Robinhood's chief legal officer Dan Gallagher said:
The idea of banning payment for order flow is pretty draconian. This is the revenue that provided us the ability to offer commission-free trading with no minimum balance, abandoning it would be such a negative thing for retail investors. We'd have to get in line, there would be a long line of folks that would sue.
Around 80% of Robinhood's second quarter revenue was derived from the PFOF practice, and prices have lost nearly 7% since Gensler made his remarks on August 30.
Early payday from RobinhoodAs a way to expand its platform beyond the world of trading, Robinhood is developing a feature that could help users get their paycheck two days early.
Robinhood is stepping up its game and taking on companies like PayPal (PYPL) with the development of a new Early Direct Deposit feature. The service will let users get their paychecks directly into their Robinhood accounts up to two days early, which also provides an easy way for people to put all of their earnings into stocks on the platform. Other payments companies like PayPal (PYPL) and Capital One (COF) already offer the service. Robinhood emphasized its plans to expand its product offerings in its Q2 earnings call:
We want to be the single place that our customers go to for all things money.
Tech Daily / Unsplash
SEC sword still hanging over Robinhood's PFOF practicesRobinhood investors have a moody Monday, sending shares down 7% as the Head of the Securities and Exchange Commission (SEC) warns that banning the brokerage’s main revenue stream could still be a possibility.
Shares of recently public online brokerage Robinhood sank 6.89% on Monday as the SEC continues to contemplate a ban on the company’s payment for order flow (PFOF) practices, which is its primary source of revenue in lieu of taking commissions on trades. Only a few weeks ago, investors thought they had dodged a bullet when the SEC supposedly shelved the piece of legislation that was looking to ban PFOF practices (which let brokers sell their customers’ buy and sell orders to market makers like Citadel or UBS, rerouting trades to them and taking the cost away from the trader.
In the first quarter of the year, PFOF practices were responsible for 81% of Robinhood’s revenue, and its no-commission model is one of the platform’s biggest draws when compared to other competitors because it allows for a more accessible market – which is part of the company’s core ethos. The SEC had flagged the process however, raising concerns that it makes customers vulnerable, with no guarantees that they would get the best price execution from the brokerage.
And as it turns out, the legislation is still very much on the table, according to SEC head Gary Gensler:
They get the data, they get the first look, they get to match off buyers and sellers out of that order flow. That may not be the most efficient markets for the 2020s. I’m raising this because it’s on the table. This is very clear.
To add insult to injury, PayPal (PYPL) might be encroaching on Robinhood’s market soon with its own trading offerings. Prices ended the day at $43.64, down from its post IPO Reddit-fuelled peak of $85.
Regulatory sharks are circlingRobinhood is in hot water with companies and financial regulators for its free stock program.
Robinhood is facing a potential investigation into its free stock program, which gives away free stocks to new users on its brokerage app and existing users who recommend a friend. In 2020, the popular brokers gave away $78 million in free shares – which is great for new retail investors, but it comes at a price for the companies behind the stocks, who are kicking up a fuss over the practice and attracting the attention of regulators. The offerings come with a whole bunch of documentation and companies are footing the bill for all this admin. Catalyst Pharmaceuticals, who picked up the first pitchfork, claims to have lost over $200,000 last year to the cost of the numerous contracts. Another company, Marathon Oil, said that the cost of proxy statement distributions has increased 25-fold since 2019 as Robinhood has added significantly to its user base. Catalyst Chief Executive Patrick McEnany wrote in a June comment letter to the Securities and Exchange Commission (SEC):
Catalyst has become aware that Robinhood has been giving away shares of Catalyst’s common stock at no charge as part of its promotional program. Catalyst believes that there are likely numerous companies facing this same issue, and that the costs of distributing materials to small stockholders under these circumstances is onerous and unreasonable.
The SEC this month allowed the New York Stock Exchange (NYSE) to ban brokers from asking for reimbursement for any shares they give away for free. Robinhood isn't a part of the NYSE, so the new rule doesn't impact it yet, but regulators are looking at making it an industry wide standard.
Prices ended Thursday down 4.33%.
Robinhood’s woeful weekendRobinhood investors had a woeful weekend after the stock lost just under 15% at the end of last week after its mixed second quarter earnings.
Popular online brokerage reported its first earnings as a public company after the bell on Thursday, doubling its revenue for the quarter but disappointing investors with predictions of a slowdown in retail trading activity in the next quarter. Robinhood reported a loss per share of $2.16 on revenue of $565 million, which was up 131% from the same period last year and at the high end of the company’s forecast of $546 million to $574 million. Despite impressive revenue numbers, the mood was brought down by a warning that Q3 is expected to see a big slow down in trading activity. Retail trading has been a driving force of the pandemic-era market mania, but as the economy reopens and restrictions are lifted, Robinhood is expecting retail interest to take a dive, which is likely to impact the top and bottom lines for the third quarter.
Prices plummeted over 10% on Thursday, continuing its losses by another 5% loss going into the weekend. However, the brokerage seems to already have an action plan in place, giving away $100,000 to recruit new investors to its platform – Robinhood will give $500 away to 200 users to either join or refer friends to the trading site.
Q2 comes good for Robinhood, but can it last?Robinhood releases its first earnings report since listing in June, doubling its revenue for the quarter but disappointing investors with predictions of a slowdown in retail trading activity.
Shares of popular online brokerage Robinhood closed up 6.71% on Wednesday but fell in after-hours trading, on the back of a mixed second quarter earnings report. The newly public company reported a loss per share of $2.16 on revenue of $565 million, which was up 131% from the same period last year and at the high end of the company’s forecast of $546 million to $574 million. Analyst expectations were varied considering how new Robinhood is, but a bigger net loss than expected overshadowed excitement over the fact that revenue came in far above the initial expectations of $521 million.
Transaction volumes jumped 141% to $451 million, boosted by a surge in crypto trading on the platform (up from $5 million in Q2 2020 to $233 million in 2021). The company also noted that for the first time ever, more new customers were making their first trades in crypto instead of stocks. Interestingly, joke meme coin Dogecoin (DOGEUSD) was responsible for much of that uptick, accounting for more than 62% of crypto trading by volume for Robinhood in the second quarter.
The firm more than doubled its monthly active users to 21.3 million, but the mood was brought down by a warning that Q3 is expected to see a big slow down in trading activity. Retail trading has been a driving force of the pandemic-era market mania, but as the economy reopens and restrictions are lifted, Robinhood is expecting retail interest to take a dive, which is likely to impact the top and bottom lines for the third quarter. The company said:
For the three months ended September 30, 2021, we expect seasonal headwinds and lower trading activity across the industry to result in lower revenue and considerably fewer new funded accounts than in the prior quarter.
David Trainer, Chief Executive Officer of investment research firm New Constructs added his two cents:
We aren't talking about people who are investors at all but gamblers and now that we've got sports back? Betting on sports is a lot more fun than betting on the stock market.
Robinhood finally breaks out of the dipAfter spending the week in the red, newly public Robinhood gains 5.4% after Congress shelves plans to go after its “Payment for Order Flow” sales tactics.
Robinhood has seen some serious highs and lows since its IPO on July 29, opening at $38 and reaching a peak of $85 on August 4, before tumbling back down as the wave of online attention ebbed away. Prices have spent every day since then in the red, sinking back down to $48 on Thursday, before catching a break from Congress. The online brokerage dodged a bullet on Thursday when the political body shelved a piece of legislation that was looking to ban “payment for order flow” (PFOF) practices, which is basically how commission-free trading platforms like Robinhood make money.
PFOF practices let brokers sell their customers’ buy and sell orders to market makers like Citadel or UBS, rerouting trades to them and taking the cost away from the trader, but the SEC flagged the process and said that it makes customers vulnerable to the brokerage, with no guarantees that customers will get the best price execution. In the first quarter of the year, PFOF practices were responsible for 81% of Robinhood’s revenue, and its no-commission model is one of the platform’s biggest draws when compared to other competitors because it allows for a more accessible market – which is part of the company’s core ethos.
Robinhood ended Friday up 5.26% at $50.63, still a solid 33% from its IPO price but down 40% from its August 4 reddit-rally high.
Robinhood woos retail investors with first ever acquisitionIn its first acquisition since it listed last month, Robinhood inks a deal to acquire Say Technologies for $140 million: yet another sign of its growing ambition.
Brokerage app Robinhood has been on a crazy ride since its IPO two weeks ago, crashing on the day before the online army took the stock under its wing and sent prices soaring over 100% in just a few days. One of the most controversial aspects of Robinhood’s IPO was the allocation of 35% its 55 million shares exclusively for its own customers, in what it claimed to be one of the biggest-ever retail allocations in an IPO, and now the brokerage is committing further to its loyal army of retail traders with its first acquisition as a public company.
The consumer investing and trading platform will acquire Say Technologies, a venture-backed start-up that provides a communication platform whereby shareholders are able to take part in proxy voting. Robinhood will pay $140 million in an all-cash deal, and the technology will let investors view documents, provide feedback, ask management any questions they have, and vote. Some companies are already including retail questions in their earnings calls, but Robinhood plans to take it to the next level, encouraging its massive pool of smaller retail investors to participate as much as possible. Say Technologies was built on the idea that Wall Street insiders aren’t the only ones who should have access to financial markets, so in theory, it’s a match made in heaven.
Together, we’ll find new ways to expand what it means to be an investor through new products and experiences that democratize shareholder access,
Robinhood said in a blog post.
Investors are holding out on celebrating though, and prices lost 3.76% to close at $51.91 on Tuesday, up 36% from the IPO price of $38.
Robinhood: The chaos continuesAfter its lackluster debut, Robinhood has been on one hell of a ride this week, hitting highs of $85 and lows of $35.50 all in the space of a few days. Despite a big old boost from the online army, Robinhood ends Thursday as TradingView’s top loser, down 28%. Guess popularity isn’t everything.
It’s been a mad week for online brokerage Robinhood, whose hotly anticipated IPO hit the market last week – although things didn't exactly go to plan. Shares closed down over $3 from its $38 IPO price, but on Monday things started to take a turn for the better as the Reddit army rode in on a surge of social media attention to save the day. The stock hovered among the most-mentioned on Reddit’s WallStreetBets throughout the week, and prices soared as much as 143% in three days, closing Wednesday up over 100% for the week.
However, its three-day winning streak came to an end on Thursday after the company registered the sale of up to 97.9 million shares by early investors, adding that it wouldn’t be taking any of the proceeds from the sale. The brokerage outlined the potential for future share sales depending on stock performance in its IPO prospectus, and it’s not unusual for early investors to sell stock in a company after its IPO. Right now it looks like Robinhood still plans to go ahead with the sale, although there’s nothing to suggest that the stockholders will choose to actually sell.
The move wasn’t welcomed by its retail supporters though. Despite the online army pushing prices up to $85 on Thursday, the latest news sent prices tumbling back down to earth, dropping 28%.
However, they still closed on Thursday well above its IPO price at $50.97. So who knows what tomorrow will bring?
The Power of Love: Robinhood's retail army rides to the rescueRobinhood may have tanked its IPO, but the online army is nothing if not loyal, and they’ve come riding in on a surge of social media attention to save the day, sending Robinhood stock soaring 24% on Tuesday.
Commission-free trading platform Robinhood made its market debut last Thursday, and things didn’t go quite according to plan. The platform is a fan favorite of retail investors and has been one of the main vehicles of the meme stock madness that took over the market this year. But that didn’t prevent a rocky first day on the market, with the price falling from its $38 debut to close at $34.82, leaving the company with a market cap of around $29 billion – one of the worst IPOs of the year for its size.
But never fear, Robinhood’s loyal army of retail traders has ridden to the rescue. The ticker spent the day at the top of WallStreetBets most-mentioned, and the love sent prices popping to $48.59 before closing at $46.80 on no other apparent news: well above its $38 IPO price. Robinhood received 8,988 buy orders and 7,931 sell orders on Fidelity on Tuesday.
Although we have come to expect 40% surges on the first day of trading, Robinhood talked to a wider swath of investors, including significant retail to push the boundaries on pricing. I believe now, the long-term investors who see the incredible long-term value of Robinhood are moving the stock, as the short-term investors have largely fled the stock,
Greg Martin of Rainmaker Securities said.
New listing in the (Robin)hoodRobinhood made its market debut on Thursday, but its grand entrance got a chilly reception, marking one of the worst IPOs of the year as it slid over 8%.
Online brokerage Robinhood was hoping to make history with its IPO, and it has, but not for the right reasons. The platform is a fan favourite of retail investors and has been one of the main vehicles of the meme stock madness that took over the market this year. But that didn’t prevent a rocky first day on the market, with the price falling from its $38 debut to close at $34.82, leaving the company with a market cap of around $29 billion – one of the worst IPOs of the year for its size.
Robinhood was founded in 2013 to offer commission-free trading, a first for the industry at that point, paving the way for smaller traders to enter the stock market. The Coronavirus promoted a surge of younger participants on the platform, and its popularity continued to soar in 2021 as retail investors explored the world of meme stocks. The app hit headlines in January as the madness kicked off with Gamestop, and Robinhood found itself in the eye of the storm after halting trading on several meme stocks, which angered a lot of traders, but that hasn't seemed to stop its growing throng of users. The company boasted 22.5 million clients as of the end of June, more than double the same period the year before, and over $100 billion in customer assets.
But Robinhood would be nothing without its loyal army of retail traders, and it knows it. The company took the unusual step of setting aside up to 35% of its 55 million shares exclusively for its own customers, in what it claimed to be one of the biggest-ever retail allocations in an IPO. Normally it's big hedge funds and institutional investors with thick wallets that take the route of buying shares of a company before it debuts, but the online brokerage seemed to think that getting its own investors involved early could be a positive step toward breaking open the world of trading to the everyday man on the street. Not everyone agreed though.
It maybe seemed like a good idea to offer (the IPO) to your customers, but it might not be very helpful when it comes to controlling how the shares are allocated and the beginning of the trading of this IPO.
said Kathleen Smith at Renaissance Capital.
Robinhood priced its shares at $38 each on Thursday, at the lower end of its $38 to $42 range, which would have given it a valuation of around $32 billion. The market had different ideas though, and after briefly popping to $40 the stock closed down over 8%. The company also has regulatory worries to contend with – only a few days before its IPO, it was revealed that CEO Vlad Tenev was under fire for not being registered with the Financial Industry Regulatory Authority (FINRA), and the SEC is reviewing Robinhood’s payment for order flow system, which was responsible for around 80% of its first quarter revenue.