Robinhood is expected to begin trading in the public market Thursday under the ticker HOOD, with an initial price of $38, giving the company a valuation of $31.8 billion, The Wall Street Journal reported. This is at the lower end of the projected $38 to $42 range that the company expected.
The investment app offers investors an easy way to buy stocks, ETFs and even cryptocurrency. Robinhood has been a key part of the retail boom we’ve seen over the past year and a half — another reason the IPO has been anticipated for so long.
In an unusual move, the company is offering about a third of its shares to its own users. Typically, companies do not offer stocks directly to regular investors. Instead, someone who wants to buy a company’s stock on IPO day just gets it in the public markets like any other stock.
Robinhood had about 17.7 million users at the end of March, but has since continued its growth spurt, reaching about 22.5 million – making it a serious player in the retail brokerage industry.
The IPO’s unique offering to its own clients can give it a competitive advantage – users who have invested in the company are more likely to remain broker clients.
Regular investors will be able to buy shares directly through the app on offer, which could mean fewer people needing to buy shares once trading starts, so observers will be watching to see how big the IPO pop is, if any. The 2020 IPOs had some of the biggest pops in recent history, while 2021 had less of this effect.
Getting the kinks out before going to the stock market
While Robinhood will go public as a mature company, the startup mindset is hardly in the rearview mirror.
The accident-prone company has settled with FINRA for $70 million, the largest fine in the authority’s history, just before announcing its plans to go public with an S-1. Among a laundry list of issues were outages, which occurred at times when trading volatility increased. (This was separate from other misdeeds during the winter, when the company was forced to suspend trading in certain stocks such as GameStop.)
In preparing for its IPO, the company has significantly professionalized itself from its Silicon Valley “break things” mentality that led it to expand its position so quickly, rethinking the way brokers make money. One of the main innovations of the platform was not to charge for trading, but to let users create it for free.
Instead, the company derives much of its revenue from order flow payment, with another company paying Robinhood for the right to process its transactions at a price equal to or better than exchange rates. (The company that runs Robinhood’s trading learns how its investors buy and sell — valuable information.)
Going forward, the public will have a much better sense of what’s going on at the company, which has only recently disclosed the number of users and the amount of assets in its custody, as well as pending lawsuits and other issues and risks.