Robinhood helped retail investors to drive volatile moves in the meme stock. Its decision to reserve an unusually large stake in its public offering for its own customer was rather shocking. Around 35% of the total number of shares were allotted to investors buying directly through its app. Usually, 10-15% of shares in a typical IPO are designated for retail investors. In traditional listings, the retail base usually consists of wealthy people who maintain brokerage account in underwriting banks. But in the case of Robinhood, half of its customers are have just entered the industry and many of them just opened their accounts in 2020.
The rise and fall of Robinhood
The lock-up period for institutional investors, a period in which they are not permitted to sell, will be 125 days (the average lock-up period is 180 days ) after the IPO. Retail investors were allowed to sell shares as soon as the stock started trading. However, Robinhood had put a clause in its prospectus that retail investors who bought directly from their app will be banned from IPO access for two months if they sell within 30 days.
It was a wild debut for Robinhood in the stock market. Shares fell 8% on day 1 and soon it soared 80%!! And this increase in share price was so hasty that the stock exchange had to suspend its trading for a while before things went back to normal again. The reason behind the soar being the increasing traffic of Robinhood on forums like Wall Street Bets on Reddit and the revelation by famous investor Cathie Wood that she has bought some shares of Robinhood. But right away after this, the share price of Robinhood was nosedived based on information that existing shareholders will sell nearly 100 million shares over time.
Long-term capital is the most important money in the brokerage sectors as brokers can count on it to stay along with their platform. Asset accumulation is significant to the fast growth that Robinhood’s institutional backers are betting on. Whether Robinhood can attract stable, long-term investors will be critical to its future revenue growth.
Robinhood is not a normal stock. It’s not a normal company. It effectively invented the meme stock craze and now it has become a part of it. Robinhood changed the market and now almost every big brokerage matches its offering of commission-free trading. The question is whether Robinhood can change how it is perceived by that market. Robinhood has the potential to tap into a market that was untapped before, but they also have to steer away from those things that are not serious and detached from fundamentals.