Robinhood's Highly Anticipated IPO Is Here
The popular investing and trading platform Robinhood is set to go public this week and its expectations are massive. Robinhood is aiming for a market valuation of about $35 billion for its upcoming IPO. Inside its prospectus, it announced that it plans to sell 55 million shares at a range of $38–$42 per share — valuing its IPO near $2 billion.
Since the company was founded in 2014, Robinhood has been able to reshape how normal, everyday people buy and sell stocks. People who once would have never thought of themselves as traders are now selling and buying shares on a regular basis.
Over the past year and a half, Robinhood has seen its users increase in number and become more interested in trading. Part of the reason for this uptick could the impact that the COVID-19 pandemic had on society. Last year, most of the country and the world were locked down and forced to work at home or just stay indoors because most businesses were closed.
People found themselves trying to occupy their time and had more free time to watch the markets and study up on investing. Robinhood’s app has been designed to give these everyday people the opportunity to invest without the barriers that most people associate with trading, like expensive commission fees. Making investing more approachable to retail investors helped Robinhood gain its popularity and has forced rivals of Robinhood and other platforms to follow suit by getting rid of commissions and offering easy-to-use apps.
Robinhood was able to tap into a part of society that was interested in trading but felt like Wall Street was against them or that there were too many obstacles and hoops to jump through. The trading app has about 22.5 million funded accounts (accounts connected to a bank account). This recent figure is an increase from 18 million funded accounts in the first quarter of 2021.
The company estimates that its second-quarter 2021 revenue was between $546 million and $574 million, which would give the company an increase of about 128% from 2020’s second-quarter revenue of $244 million.
The company also has plans to give its users access to about 35% of its IPO shares — or up to 18.3 million shares. These users will have access to Robinhood’s IPO shares through the app’s IPO Access feature.
This would be a unique opportunity for these users since most often retail investors don’t really get the chance to participate in a company’s IPO and buy in at its IPO price. Usually investing early in IPOs tends to be accessible only to institutional investors. This aligns with Robinhood’s objective to give their customers more access to markets. Robinhood customers will be allowed to sell their shares from the IPO within 30 days, but if they choose to do so then they won’t be able to use IPO Access for 60 days.
Reena Aggarwal, a professor of finance at Georgetown University and director of the Georgetown Center for Financial Markets and Policy, had this to say about partaking in Robinhood’s IPO:
Don’t expect a steady rise without some volatility. We’ve seen individual investors get driven by sentiment quite a bit.
Individual investors are still subject to a lot of risk and complications when it comes to participating in a company’s IPO, especially an extremely popular company like Robinhood. Generally, a company is attempting to sell potential investors on a compelling story about the company or is riding on its popularity and name to reel inventors in. When a company is going public, it aims to earn the most money it can from its IPO. It’s sometimes difficult to get the full picture of the company and accurate financials this early on.
Robinhood is set to go public Thursday, July 29, on the Nasdaq with the symbol “HOOD.” The lead underwriters for its IPO are Goldman Sachs, Citigroup, and JPMorgan. The company should price its IPO the night before, on Wednesday, July 28. While it’s easy to get caught up in the hype and the story the company is marketing to potential investors, these kinds of IPOs can be too risky for the average investor if they aren’t familiar with IPOs and the market.
Following the company after it goes public and getting a better understanding of its financials and future growth expectations will help you get the larger picture and decide whether the company is worth the investment. After all, now that the company will be publicly traded, it will have to abide by SEC laws when reporting its earnings.
Until next time,