Written by Norman Isaac Mwambazi

Five things to know as Robinhood raises $2B in IPO

Over the past few years, stockbroker Robinhood Inc. has registered tremendous growth in both users and revenue, primarily due to …

Over the past few years, stockbroker Robinhood Inc. has registered tremendous growth in both users and revenue, primarily due to its attractive option of charging absolutely no fees for trading carried out on its platform. This option has attracted millions of young investors looking for a cost-friendly way of investing in stocks, cryptocurrencies, and other assets.

Due to this growth, Robinhood filed with the Securities and Exchange Commission (SEC) to go public and was given the green light to do so after fulfilling requirements, some of which include registering five consecutive profitable quarters. Yesterday evening, the trading app went public, pricing its Initial Public Offering (IPO) shares at $38.

The company had set a share price of between $38 and $42. Trading at a minimum price of $38 a share put Robinhood’s initial market capitalization to $26.7 billion, making it more valuable than the actual Nasdaq exchange and financial-services giant State Street (ticker: STT) Robinhood has started trading officially on the tech-heavy Nasdaq this morning, Thursday, July 29, 2021, under the ticker symbol HOOD.

Robinhood’s IPO is being underwritten by all the big banks, except for Morgan Stanley (ticker: MS), which is common practice now. Robinhood’s filing to SEC revealed that its founders will retain a massive amount of control after the IPO and that 20-30% of the shares will be made available to its users on the platform.

Here are five things you need to know about Robinhood’s IPO

Robinhood has registered astounding growth recently

The astonishing growth of Robinhood has seemingly taken the financial world by storm; As of March 2021, the company had 18 million users on its platform, and its financial statements showed that the company registered an astounding 107% year over year growth. In the same period, its revenue grew by more than 311%.

This growth is attributed to several things, such as the coronavirus pandemic that forced people to spend more time indoors and online. The several stimulus checks passed by both the Trump and Biden administrations increased people’s spending ability, a sizeable number of whom chose to invest in stocks. With Robinhood being able to offer a free trading platform, the company cashed in big.

This growth was fuelled even further in January when retail investors ganged up against Wall Street and picked up earlier shortened stocks like theatre operator AMC entertainment (ticker: AMC) and videogame vendor GameStop (ticker: GME). The high trading volume of these stocks forced the company to suspend trading for some hours. And which trading app was at the centre of all this frenzy? Robinhood. Robinhood Chief Executive Officer (CEO) Vladimir Tenev had to testify before a House committee about the company’s acts during the meme stock season in January.

Robinhood revealed that it has plans to expand into Asian and European markets to keep growing, as retail trading is slowing down since more people are returning to work.

Many people are suing Robinhood

Apart from the software development team that keeps improving the Robinhood app, the company’s legal team is the busiest department at Robinhood, working day and night to solve all the lawsuits against the company.

The company is currently facing over 50 lawsuits, most of which are connected to the January meme stock season. However, the most notable of the lawsuits was from the family of Alexander Kearns, a young trader who took his life last year after seeing a negative balance in his account on Robinhood, mistakenly believing that he was $75,000 in debt. The family sued the company for the “wrongful death” of their son, but Robinhood has since communicated that an out-of-court settlement had been reached with the family.

Last month, the Financial Industry Regulatory Authority (FIRA) slapped a $70 million fine on Robinhood for distributing false and misleading information to its customers, failure to provide complete market data to its users, and not carrying out enough due diligence before approving riskier options accounts for novice traders, among other regulatory issues.

In Massachusetts, a state regulator alleges that Robinhood has broken three state securities laws, while in New York, authorities are investigating possible money laundering and cybersecurity infractions on trading Robinhood’s platform.

Other lawsuits the company is facing include a class-action suit in which 2,000 people claim that their accounts were hacked, with others claiming that they were locked out of their trading accounts when the company experienced server outages in March last year, among many other suits.

Robinhood plans not to repeat past mistakes in the future

In its offering document, Robinhood sent a clear message about what they are working on improving to prevent repeating past mistakes that have fetched them a host of lawsuits and cost the company millions of dollars in fines to regulators. As quoted from its filing, these include;

  • Safety First: Robinhood refers to itself as a safety-first company for its employees and the users of its trading platform.
  • Participation is power: Robinhood strives to have a level playing ground where both the privileged and under-privileged get the same deals on the platform.
  • Radical customer focus: Robinhood says its only reason for existence is to make its customers happy (and make money while at it).
  • First-principles thinking: The company said it is bold enough to make bold bets and challenge the status quo.

With these four principles, Robinhood made it known that it has accepted the mistakes made in the past that harmed the company and its customers, but it has learned and is ready to make improvements so that it doesn’t repeat the mistakes.

Robinhood is the king of dogecoin, not Elon Musk

In the past three months or so, no top CEO has talked more about cryptocurrency, specifically Bitcoin and dogecoin, than Tesla Inc. (ticker: TSLA) CEO Elon Musk. Musk has tweeted and expressed his views about the crypto-verse on Saturday Night Live, recently sending cryptocurrency prices in turmoil, leading to the false assumption that he owns the most dogecoin in the world. According to Robinhood’s statements; The company disclosed that it owns almost $12 billion in cryptocurrencies, and $4 billion of that could be dogecoin, which is equivalent to 7% of all dogecoins in circulation.  

According to Robinhood’s filing, in Q1 FY2021, dogecoin trading made up 34% of the company’s entire cryptocurrency transaction revenue, up from the 4% is accounted for in Q4 FY2020.

The average Robinhood user was born in the ’90s

As of March 31, 2021, Robinhood said that approximately 70% of its AUC are customers aged between 18 and 40, and the median age is 31. As mentioned earlier, younger people are attracted mainly by Robinhood’s business model that allows users to trade stocks, cryptocurrencies, forex, and others free of charge on its app. As has been noted across the globe, the obsession millennials and Gen Z’s have with apps seems to feed right into Robinhood’s winning strategy.