Robinhood stock began trading Thursday under the ticker HOOD and opened in the public markets at $38 a share. The shares were also priced at $38.
In the first half hour, the stock fell about 9% to about $34.
The price of the stock would be between $38 and $42, which would come to the lower end of the range and give the company a valuation of $32 billion.
Providing investors with an easy and mobile-first way to buy stocks, ETFs and even cryptocurrency, the investment app has played a key role in retail trading we’ve seen over the past year and a half — another reason the IPO has been eagerly anticipated.
In an unusual move, the company offered 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.
Another interesting approach to this IPO is restrictions for insiders to sell. Often, investors are required to not sell for six months or so, but Robinhood allows its employees and others holding stock to sell up to 15% immediately, and another 15% after three months. This means liquidity and flexibility for this group of investors, but also means that a typical upward price factor is missing.
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.
Ordinary investors would be able to buy shares directly through the app on offer, which could mean fewer people needing to buy shares when 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.
Now anyone – including Robinhood users – can buy the company’s stock normally.
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 the company’s decision over the winter to pause buying certain meme stocks like 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.