And yet Robinhood failed to hit the $35 billion valuation it had coveted.
The IPO is raising $2.1 billion and Robinhood is expected to begin trading on the Nasdaq on Thursday under the ticker symbol “HOOD.”
The deal is still a major milestone for a company that revolutionized the way Americans invest and is enjoying explosive growth.
“The business has been a juggernaut. They’ve got a great platform they can build off of,” said David Weild, former vice chairman of the Nasdaq who is now the CEO of investment bank Weild & Co.
Robert Le, analyst at PitchBook, said Robinhood appears to be leaving some money on the table in an effort to get a first-day pop in its share price.
“Robinhood is playing it safe here,” Le said in an email. “There is more hanging in the balance in terms of a successful novel IPO than a couple hundred million dollars in the bank for the company.”
‘It seems rich’
But investors are paying a premium for that growth.
Now Robinhood is disrupting the IPO process. The company is allowing its users to buy a chunk — as much as one-third — of the IPO shares before they begin trading on the Nasdaq. Normally, only corporate insiders and powerful institutions get access to these coveted shares.
New regulatory probes revealed
Robinhood neither admitted to nor denied the FINRA charges.
Weild, the former Nasdaq executive, said Robinhood’s struggles may have only enhanced public awareness about the company — something that ironically helps. He likened the situation to challenges that faced America Online during its rapid expansion.
“All it did was increase their visibility and branding,” Weild said.
‘These are not free apps’
But Robinhood’s struggles have also shined a bright light on the company’s controversial business model, known as payment for order flow. Like some other online brokerages, Robinhood makes most of its revenue by selling its retail order flow to high-speed trading firms like Citadel Securities.
Robinhood argues that this tactic benefits everyday investors because it has paved the way for no-commission trading. But others say it’s really the high-speed trading firms that are benefiting — otherwise they wouldn’t be paying Robinhood for the order flow.
“These are not free apps. They are just zero-commission apps. The cost is inside the order execution,” Gensler told lawmakers.
If the SEC bans payment for order flow, it would deal a blow to Robinhood.
“We think payment for order flow is a benefit to retail investors,” said PitchBook’s Le. “But if regulators don’t see it that way and ban it, Robinhood will have to find new sources of revenue. That would be a big risk.”
Levered to the market boom
Smith, the Renaissance Capital executive, said another risk is how closely linked Robinhood’s bottom line is to the fate of booming markets.
“What if we get a negative market? People could easily get turned off if they lose money,” Smith said. “This company is so levered to equity and crypto markets. A downturn would hurt Robinhood more than a Charles Schwab.”