On a smartphone, the logo of the trading app Robinhood can be seen.
| AFP | Getty Images, Olivier Douliery |
Thursday was a big day for Robinhood Markets, which filed for a highly anticipated IPO, revealing rapid growth during the pandemic and a large customer base.
First quarter losses of $1.4 billion were reported in Robinhood’s S-1 filing with the Securities and Exchange Commission, which has about 18 million funded retail clients. In the first quarter of 2020, the company earned $128 million, but in the first quarter of this year, it earned $522 million.
The company intends to list its stock on the Nasdaq under the symbol “HOOD.” During the company’s public debut, the brokerage hopes to raise $100 million.
According to the company’s prospectus, its funded accounts, or those with bank accounts linked to them, increased by 151% from 7.2 million in 2020 to 18 million in March of this year. As of March, there were $19.2 billion in assets under management. A total of 17.7 million people log in each month.
Between 20% and 35% of Robinhood’s IPO shares will be given away to its retail customers.
Since its founding, the company has added 2,100 full-time staff members.
Underwriters on the deal include Goldman Sachs, Citigroup, and JPMorgan, as well as other banks.
GV, D1 Partners, Sequoia, and Kleiner Perkins are among Robinhood’s most significant venture capital investors.
Pioneer of free-trading
Vlad Tenev and Baiju Bhatt founded Robinhood in 2013. Free stock trading was pioneered by the Menlo Park, California-based start-up in 2019, causing the entire industry to drop commissions.
Options, equity, and cash management accounts are all available at Robinhood. Users can make most trades for free. Customers’ purchases and a premium service are how the app earns money.
According to a regulatory filing with the SEC, the stock trading firm collected an all-time high of $331 million in payment for order flow – the money brokerage firms receive for directing clients’ trades to market makers.
Among the most popular entry points for new investors is Robinhood, which has made it their mission to “democratise” investing.
During the pandemic, the app saw a surge in the number of new, younger investors.
As of 2021, this upsurge has continued, marked by frenetic trading in what have come to be known as “meme stocks.” The short squeeze in GameStop, which was fueled in part by Reddit-driven retail investors, put the millennial-favored stock trading app in the middle of a firestorm in January.
Robinhood restricted trading of certain securities at the height of GameStop’s surge due to increased capital requirements from clearing houses.
As of May 20, Robinhood is allowing retail investors to buy and sell IPO shares, which had previously been reserved for Wall Street banks and more savvy investors.
Adolescent angst
The rapid expansion of Robinhood has not been without its difficulties.
As of Wednesday, Robinhood had been fined $70 million by the Financial Industry Regulatory Authority (FINRA). To settle Robinhood’s March 2020 problems, Robinhood must acknowledge its failure to conduct proper due diligence before approving customers for option trades, and its misleading information to customers about aspects such as margin trading.
Lawsuits have also been filed against Robinhood for multiple days of outages during the pandemic.
According to Robinhood’s “risk factors” section of the prospectus: We have grown rapidly in recent years, but we lack operating experience at our current scale of operations; if we are unable to effectively manage our growth, our financial performance may suffer and our brand and company culture may be damaged.
After being accused of misleading customers about how the app makes money and failing to deliver the promised best execution of trades, Robinhood paid the Securities and Exchange Commission $65 million. After Massachusetts regulators filed a complaint accusing the trading app of predatory marketing on inexperienced investors, the Securities and Exchange Commission filed charges against the company.
It is also being sued by the family of Alex Kearns, a customer who killed himself last summer after believing he had made large losses on the millennial-favorite stock-trading application Robinhood.
Also in February, Robinhood’s CEO Tenev was compelled to testify before the House Financial Services Committee about the GameStop trading mania. A subsidy that Robinhood receives from market makers such as Citadel for bringing them trades was criticised by legislators as “payment for order flow.”
However, it’s often criticised because of a lack of transparency in order flow payment.
Since then, Robinhood has taken steps to address some of the criticism, such as providing more education services for its customers and removing the confetti feature when investors make trades.
This year’s CNBC Disruptor 50 list ranked Robinhood first.
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