In a Monday filing, Robinhood Markets Inc announced that its initial public offering in the United States is aiming for a valuation of up to $35 billion, setting the stage for one of the most eagerly awaited stock markets debuts this year.
According to Reuters, Robinhood was looking for an IPO price of up to $40 billion.
The IPO will sell about 55 million shares, with prices likely to range between $38 and $42, according to the firm. If priced at the top of the spectrum, this would raise nearly $2.3 billion.
In March, Bloomberg Intelligence projected that Robinhood may be worth between $13 billion and $40 billion.
In its first public offering, Robinhood hopes to raise more than $2 billion. It will now proceed with its IPO roadshow, which will begin meeting with investors this week, now that the price range has been established. Its value may fluctuate in the future, depending on investor demand.
According to sources familiar with the situation, the business is scheduled to begin trading on the Nasdaq Stock Market on July 29.
Robinhood will join the ranks of Coinbase Global Inc., a cryptocurrency trading platform that debuted this year and is already valued almost $47 billion, and industry heavyweight Charles Schwab Corp., which purchased competitor TD Ameritrade last year and has a market value of around $130 billion.
Robinhood’s IPO, which is expected to generate more than $2.2 billion, would be the fifth-largest on a U.S. exchange in 2021. According to figures gathered by Bloomberg, 648 businesses have raised a total of $218 billion this year, setting an all-time high.
Robinhood Markets, Inc. is an American financial services business based in Menlo Park, California, that specialises in commission-free stock and exchange-traded fund trading using a mobile app launched in March 2015.
During the coronavirus epidemic, Robinhood grew in popularity as homebound young people turned to online trading to pass the time and make money. Its monthly active users have more than quadrupled in the last year, reaching 17.7 million in the first quarter of this year, up from 8.6 million in the same quarter of 2020.
Customers will receive 20% to 35% of the company’s Class A shares, according to the Menlo Park, California-based firm.
DST Global, Index Ventures, New Enterprise Associates, and Ribbit Capital are among Robinhood’s biggest shareholders. Prior to the offering, each group owned more than 5% of the company’s equity.
Robinhood’s offering is led by Goldman Sachs Group Inc. and JPMorgan Chase & Co. Its stock will most likely trade under the ticker HOOD.
The Financial Industry Regulatory Authority fined Robinhood almost $70 million in June, a new high for the agency. Finra said that Robinhood deceived its consumers regarding margin trading and failed to properly oversee technology and option trader approvals. The accusations were not confirmed nor refuted by Robinhood.
Robinhood intends to reserve certain of its offerings for users of the trading app, as reported by Reuters in March. According to the petition, between 20% and 35% of shares would be given to users, depending on demand from consumers and other investors.
In a separate statement, Robinhood said that on July 24, it would hold a public event to discuss its IPO plans and answer questions from potential investors. This is similar to conventional roadshows that businesses and their advisers hold with professional investment firms in the lead-up to a public offering of stock.
Going Mainstream Robinhood was created in 2013 by roommates Vlad Tenev and Baiju Bhatt from Stanford University. According to the filing, they will control a majority of the voting power following the transaction, with Bhatt holding roughly 39% of outstanding shares voting power and Tenev 26.2 percent.
Users may conduct limitless commission-free transactions in stocks, exchange-traded funds, options, and cryptocurrencies using the company’s platform. Its user-friendly interface made it a popular choice for young investors who wanted to trade from home during the coronavirus’s limitations, and its popularity has skyrocketed in the last 18 months.
According to its filing, Robinhood has 18 million funded accounts as of March 31.
The trading frenzy in so-called meme stocks fueled a four-fold increase in revenue from January to March, according to Robinhood’s IPO filing earlier this month, but the rapid growth came at a cost.
After being forced to halt trading in the middle of this year’s rise in GameStop and other previously beaten-down companies, the firm was chastised.
Robinhood had to seek $3.4 billion in emergency financing at the time after its finances were stressed by a large increase in retail trading and a corresponding increase in capital needs from clearing houses.
According to sources familiar with the situation, the business was valued at about $30 billion in that round.
The IPO of Robinhood comes after a record 15-month run for the IPO market in the United States, as investors rushed to purchase shares in high-growth digital companies.
The business intends to list under the ticker “HOOD” on the Nasdaq.
The offering’s primary underwriters are Goldman Sachs and J.P. Morgan.
Phenomenal growth story
Regardless of how you feel about this online brokerage’s woes, its ascent has been spectacular. The website attracted 13 million members from its inception in 2013 and the end of 2020. In the first two months of 2021, it attracted another 6 million users.
The marketing slogan for Robinhood is “democratise finance.” While this is largely marketing exaggeration, it has resonated with buyers, particularly during the Covid-19 epidemic. Lockdowns, ennui, and government stimulus checks have all been blamed by analysts for attracting a large number of new users to the app in the previous year. It has also stated that 20 percent to 35 percent of its pre-IPO shares will be reserved for its consumers.
According to Sensor Tower, weekly downloads from US app stores soared in the first half of 2020, making it the fourth most popular finance app for the first time.
According to industry news site Business of Apps, the average account size is under $3,500, compared to $100,000 for E-Trade and $240,000 for Schwab.
The influx of new consumers at Robinhood has sparked a lot of buzz on Wall Street. According to reports, the firm was valued at $12 billion in September 2020, growing to over $20 billion by the end of the year, and then tripling to $40 billion in February 2021.
Despite having only a quarter of its established rival’s assets under management, this would put Robinhood’s market valuation at one-third that of Charles Schwab.
Users of Robinhood are encouraged to trade often and perhaps take on more risk than they are comfortable with, which might lead to disastrous consequences. Because it receives some of its revenue by selling order flow, it’s in Robinhood’s best interests to increase trading volume.
This unusual business approach entails a brokerage platform, such as Robinhood, auctioning off its clients’ market orders to high-frequency traders, who then pay to complete them. The technique is now legal, but the Securities and Exchange Commission is reportedly looking into it.
Should you invest in Robinhood’s IPO?
It’s critical to maintain Robinhood’s entire tale in context.
Robinhood operates in a very competitive industry, and its rivals aren’t going away anytime soon. TD Ameritrade was recently acquired by Charles Schwab for $26 billion. E-Trade was purchased by Morgan Stanley. WeBull, a Chinese-owned investment app, is attempting to replicate Robinhood’s gamified app investing strategy. Stock trading is a market that has been commodified. End-user prices are as cheap as they come: essentially nothing.
Since then, Robinhood has sought to differentiate itself by allowing investors to buy Bitcoin and other cryptocurrencies, but other players—Coinbase, Paypal, and Fidelity, to name a few—are also important rivals in that sector.
Robinhood will have to keep expanding in order to justify its exorbitant value. However, if the exuberant stock market collapses, this may be impossible. With the exception of the historically unprecedented pandemic collapse and bounce in February and March 2020, most new investors have only seen bull markets.
Robinhood said it anticipates revenue will be lower in the Q3 of 2021 as a “result of decreased levels of trading activity relative to the record highs in trading activity, particularly in #cryptocurrencies #Crypto now 17% of revenue#doge
— Susan Li (@SusanLiTV) July 19, 2021
This streak of good fortune contradicts previous history: Socks notably had a bad decade in the 2000s. What happens to investors’ risk appetite during a typical recession? Because Robinhood hasn’t proved competent of coping with such a scenario, smart investors should limit their exposure to the firm.
So don’t risk more than you can afford to lose since things could not turn out nicely.