How You Need to See The Robinhood IPO

By Samson Arman, King’s College London

  • Robinhood, the brainchild of creators Vladimir Tenev and Baiju Bhatt, is a commission-free trading app that allows users to trade in stocks, options, exchange-traded funds, and cryptocurrency.
  • The trading app is currently offered to those who possess a valid Social Security Number (SSN), making the services exclusive to those who reside in the United States. 
  • The plans to open the app to prospective traders in different countries like the UK has been put on indefinite hold, with the original plan of trying to make it available in 2020 being pushed back to later this year.

Updates on IPO:

Robinhood successfully went public on the 29th of July 2021. The online brokerage originally traded at an opening share value of $38, at the lower end of their $38-$42 range, giving a total valuation of the company $31.8 billion. 

The trading service now on the NASDAQ under the ticker HOOD is sitting comfortably at $48.37 at the time of writing, a growth of 27.29% from its preliminary value, even reaching a peak of $70.39; albeit only for a few hours. 

What does ‘going public’ mean?

The term ‘going public’ refers to how Robinhood, originally a private company, is now going through the process of becoming a publicly traded and owned entity through its initial public offering (IPO). In turn, this will help the trading platform to raise more capital in the hope of funding any future investment and expansion on the table.

What makes Robinhood unconventional?

The IPO has raised a few eyebrows on how the company decided to issue its shares. Typically, when companies go public, all the shares go directly to the stock market to be purchased on the IPO day for all traders.

However, Robinhood decided to go directly to its current users, to offer a third of its shares to retail investors, not discriminating between trading account sizes, to be part of the company. 

This bizarre strategy could have been done for several reasons, such as:

  • To drive up the share price in the hope every one of their users’ purchases stocks.
  • To strengthen customer loyalty and attract future users of the app currently sitting on the fence.
  • … Or even to create positive PR? In what has been a dismal few years for the company, it might not be as far-fetched as it sounds…

Past controversies:

Over the last two years, Robinhood has had its share of bad press such as the untimely death of Alex Kearns, revealing the dark side of free trading apps.

When Kearns logged on to the app, he saw a negative cash balance display of $730,000, leading the 20 year-old trader to take his own life — but it later emerged that he did not actually owe any money, and instead had a balance of $16,000. 

What’s more, the company was recently investigated by the SEC for selling client orders to traders, which was later settled for $65 million. 

After the GameStop short controversy, Robinhood — as well as many other trading platforms — restricted trading in certain stocks which gained fame on Reddit account r/wallstreetbets, to meet collateral requirements at their clearing house (the intermediary between buyers and sellers of financial instruments). 

This led to a mass influx of negative reviews for the app, which has since been removed by the App Store and Google Play Store.

Nonetheless,  how recently the customer relationship has been tarnished, making winning back users’ trust at the top of Robinhood’s list of priorities.

What’s in store for Robinhood?

For now, the future does look bright for Robinhood, as the trading platform already boast a user count of over 22.5 million, with no signs of slowing down. 

This is largely due to the wave of new users coming out of the lockdown era looking to invest their money wisely, as well as looking for new ways to escape the boredom of house arrest. 

The relatively young average member age of 31, according to The New York Times, might be a sign pointing towards the curiosity for younger individuals in trading, as the app is structured around making investing simple for novices, educating everyone on how stocks really work, and how to take part.

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