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Robinhood’s Public Trading Debut Worst Ever for IPO of its Size
Robinhood made its public trading debut on Thursday 29th, July. The previous day, the brokerage firm was valued at $32 billion when it priced its IPO at $38 per share. When it began trading, shares initially rose 6% before falling as much as 12%.
According to reports, Robinhood’s stock market entrance was the worst recorded among 51 US firms that raised as much or more capital. Robinhood even dethroned MF Global Holdings Ltd with its underwhelming debut. The latter firm’s IPO took place in 2007, and it ended its first day down 8.2%.
Unexpectedly Disappointing Debut
Earlier this year, Robinhood raised $3.4 billion and had shares trading on private secondary markets with a value of approximately $40 billion. The capital was raised during the swell in retail trading of meme stocks like AMC Entertainment and GameStop.
The company has prospered during the COVID-19 pandemic. Over the course of the government-sanctioned lockdowns, millions of Americans have tried their hand at investing in the stock market. Robinhood has over 18 million accounts and 17.7 million active monthly users. The popularity of crypto and options trading is thought to have accelerated the company’s growth.
While the online trading app is not yet profitable, it experienced revenue growth of 245% to nearly $1 billion in 2020. According to its S-1 filed with the SEC on July 1st, that growth then accelerated in the first quarter of 2021, climbing 309% to $522 million.
Words of Warning
Ahead of Robinhood’s IPO, US Congressman Sean Casten (D-IL) and Congressman Bill Foster (D-IL) introduced the ‘Trading Isn’t a Game Act’. The Act would require the US Government Accountability Office (US GAO) to carry out a study on the impact of the gamification of online trading platforms.
Both Casten and Foster discussed the ‘Trading Isn’t a Game Act’ this week and issued some words of warning concerning Robinhood.
“Robinhood functions like a virtual casino gamified to harness human psychology – where market makers are the House – designed to drive frequent, short duration, Roulette-like trades, ready to extract fast money from investors against their best interest,” said Congressman Casten.
“App-based investment platforms like Robinhood are increasingly designing their products to look more like games than financial instruments, leading many Americans to risk their hard-earned money on wagers they may not fully understand. It’s critical that we look closely at how these tactics are affecting consumers so that we can put the necessary safeguards in place to keep consumers safe,” said Congressman Foster.
Unique Move
In a unique move, Robinhood offered 35% of its IPO shares to its users. This allows the company’s app users to take advantage of the public offering price. The public offering price or POP is the price at which new issues of stock are offered to the public.
Typically, buying shares in an IPO is reserved for institutional and wealthy investors. Once shares start trading actively on the market, then anyone can get involved. However, that means that those who weren’t able to get involved from the start will miss the POP.
Robinhood claims that its goal is to democratize the market and allow the average investor to get involved. However, this didn’t appear to boost the worth of its shares during initial trading.
The company’s share price is $34.82 at the time of writing.
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