Menlo Park-based Robinhood goes public with abrupt fall and swings


NEW YORK, NEW YORK – JULY 29: Baiju Bhatt and Vlad Tenev pose in Times Square on Robinhood Markets IPO Day on July 29, 2021 in New York City. (Photo by Cindy Ord / Getty Images for Robinhood)

Wall Street gave Robinhood a cold reception on Thursday when the online brokerage firm debuted the stock market it helped reshape by attracting millions of new investors.

Robinhood Markets Inc. shares fell 8.4% on their first day of trading on the Nasdaq from their initial price of $ 38 set on Wednesday night. It was a disappointing performance after the offer was already listed at the low end of its expected range.

At that price, the company is valued at around $ 29 billion, like companies like supermarket chain Kroger and steelmaker Nucor, although its weight on the pop culture landscape may be even greater.

Robinhood has created a lot of passion, among users and critics alike, and that polarizing effect occurred on Thursday, with its stocks going from a 5.9% gain to a 12.2% loss in their first one. hour of negotiation.

The movements were particularly sharp for some of the Robinhood customers who bought the stock. Before starting to trade, the company reserved much of its IPO for its own clients with smaller pockets rather than large professional firms, as part of its mission to “democratize finance.”

“I expected a pop,” said Jeffrey Colindres-Soto, a 26-year-old from Miami who bought the stock after it started trading. “But once it started to go down like that, I think a lot of people just started leaving because they already knew it was the sale there.”

Now that Robinhood’s stock is trading on the Nasdaq, its performance provides real-time insight into the market’s judgment on the company’s outlook. The company is already showing the strong growth Wall Street is always hungry for: its revenue soared 245% last year to $ 959 million.

It has racked up around 22.5 million funded accounts since its inception in 2013, having removed trading fees and made investing easier, if not fun, with its mobile app. More than half of its clients are first-time investors, giving them more ability to keep pace with richer equity households that have been retiring for years.

But Robinhood has also drawn a lot of criticism and has paid more than $ 130 million in recent years to settle a list of charges from regulators. Critics say Robinhood encourages unsuspecting investors to trade too often that may be too risky, and regulatory scrutiny is likely to remain high.

“These settlements that they have made are largely a lack of controls, a lack of disclosure,” said Josh White, professor of finance at Vanderbilt University and former economist at the Securities and Exchange Commission. “As they grow up, can they invest in the platform to be seen on the side of these particular investors? “

Some users are still angry with Robinhood after this and other brokers temporarily shut them out of GameStop stock trading earlier this year, when hordes of investors with smaller pockets drove the stock up in part to upset it. Wall Street financial elite.

Questions also remain as to whether regulators can step up oversight of its main money generator. This routes its customers’ orders to the big trading companies on Wall Street, who pay Robinhood to take the other side of the trade.

Beyond that, Robinhood has everything to lose if the boom in commerce it helped create among ordinary people wears off.

Such concerns were among the reasons for Robinhood’s drop on Thursday, a noticeable move when most IPOs get an initial pop. In the past decade, just 17% of IPOs above $ 1 billion have seen the stock price drop on day one, said Matt Kennedy, senior strategist at Renaissance Capital, a pre-research provider. -IPO.

Concerns started early in the day for Sandra Marvel, a 49-year-old investor from Raymore, Missouri, who planned to buy stocks until she saw they were at the low end of their expected range, and then initially fall.

“I completely gave up on my plan,” she said. “It doesn’t look good. I think there are much better jobs out there.”

Marvel, who quit his job in insurance sales last year to trade stocks full-time, has been using Robinhood since 2018.

Even some fans who bought the stock did so with reservations. William Van Horn II, a 30-year-old man who works in commercial real estate in Pensacola, Florida, said he uses Robinhood for almost all of his transactions because it is so much easier to use than other apps when ‘he travels between sites for work.

He said he bought shares on Thursday, but he is aware of the criticism Robinhood is receiving for its customer service. He said he himself lost thousands of dollars due to service outages early last year.

“I understand the evil, but I am also a true believer in it,” he said. “Do you go with your heart or with your logic that there are so many problems?”

Robinhood, which is based in Menlo Park, Calif., Has big plans for growth going forward, continuing to evolve since launching as a stock-only iPhone trading app.

“Over time, we want to be the single currency app, the most reliable and culturally relevant currency app in the world,” CEO Vlad Tenev said in an interview. “So whatever you use your money for you should be able to do through Robinhood.”

Among them, he said, were direct deposits of paychecks and online bill payment.

He also fended off criticism that Robinhood would turn the stock market into a casino by encouraging its clients to trade more often.

“I think that’s a big, big distortion because if you look at it, the stock market has been one of the greatest tools for building wealth,” he said. “We should encourage access to it and not denigrate the people who are able to use it. So in a sense you mean when richer clients go into the stock market, it’s investing. But when the rest of us get into the stock market, that’s the game. “

Robinhood himself has raised nearly $ 1.9 billion under the deal, which he plans to use to grow and help pay for expected tax obligations.

Despite Thursday’s drop, some investors are not discouraged, taking a long-term perspective. Allen Tran, a 23-year-old New Yorker, said he was not considering selling any of the shares he bought for $ 38 that Robinhood had reserved for his clients.

“I have no anticipation of selling in the next two, three or five years, so I have no reason to really care about the price,” he said.


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