Hi all, it’s Annie from Bloomberg’s investing team. Soon, Robinhood Markets Inc. will go public. The debut—which could happen in the coming weeks—will see Robinhood entrust its share price to the same retail investors who have been using its app to roil markets.
The free stock trading app has been around for eight eventful years. During the pandemic, Robinhood traders congregated on Reddit message boards and drove wild swings in the price of companies like GameStop Corp. and AMC Entertainment Holdings Inc. Then, when Robinhood put limits on customer purchases of those stocks, the startup incurred social media wrath, along with some lawsuits.
Two weeks ago, Robinhood sustained its largest blow yet. The Financial Industry Regulatory Authority, the industry’s self-funded watchdog, dealt the company a nearly $70 million penalty for infractions including misleading customers about trading with borrowed money, faulty technology oversight and lax approval systems for options traders. Robinhood didn’t admit or deny the allegations, which is typical in these situations.
The fine was a record for Finra. And it capped a litany of legal woes for the company. Robinhood’s unfinished business also includes an inquiry from the New York State Department of Financial Services, which may extract about $15 million to settle claims over its anti-money laundering and cybersecurity practices, according to the filing.
But just one day after the Finra fine, Robinhood had better news. The company’s S-1 paperwork was released July 1, offering a glimpse into its finances. The recent boom in retail trading helped boost the number of active users on the app to about 18 million at the end of March, more than double its level a year earlier. The startup brought in about $959 million in revenue last year—more than triple its 2019 sales. Robinhood could be worth as much as $40 billion when it starts trading publicly, according to Bloomberg Intelligence estimates in March.
But the initial public offering won’t just be about the fundamentals, it will also be a test of its customers’ trust. While pre-IPO shares are usually allotted mostly to institutions and hedge funds, Robinhood plans to set aside 20% to 35% of its shares for its retail investors. Robinhood has said its broader offering is part of its mission to make investing more accessible. It has already offered pre-IPO shares for companies including medical scrubs seller Figs Inc.
The plan comes with risks. Retail investors could inject more volatility into Robinhood’s share price. Its shares could trade a little like the meme stocks GameStop and AMC we all remember from earlier this year. And aside from the possibility for big swings, Robinhood has warned that the relatively high share of retail investment in its IPO might cause its stock to rise to unsustainable levels.
But the startup appears ready to embrace the chaos. In an article I wrote last week about the aspirations of Robinhood’s 34-year-old Chief Executive Officer, Vlad Tenev, I noted one of his recent statements from a TikTok interview that could prove fateful. Said Tenev: “We’re big meme lovers.” —Annie Massa
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