Robinhood’s Risky IPO: Everything You Need to Know

Robinhood's Risky IPO

Next Thursday, July 29, is a date marked on the Wall Street calendar. Robinhood’s stock market debut was already one of the most anticipated dates of the year, but interest has multiplied since the unusual IPO procedure that it will follow became known.

The estimated starting price is between 38 and 42 dollars, although it will be definitively set next Wednesday. Debuting at the top of that band, the company would capitalize about $2.2 billion, while its global valuation would amount to $35 billion.

A double-edged opportunity

As the company announced a few weeks ago, it will reserve up to 35% of the outstanding shares for the investment platform’s own clients to acquire. If it is already infrequent for a company to reserve part of the shareholding for its clients to acquire in advance, that the percentage is so high is a milestone in the stock market world.

The founders, Vlad Tenev and Baiju Bhatt, allege that they created the company to “democratize the financial system”, and that they have spent two years discussing how to do that with their own IPO. The answer has been found in reserving up to 19 million shares of the 55 million that will be put into circulation so that Robinhood users can acquire them as a priority.

The way to do this will be through the investment platform, and specifically from its “IPO Access”, a product launched this year and that allows clients to issue purchase orders before the company is publicly listed. In this way, interested users will be able to launch their offers from Monday 26.

Volatility and technical problems

Given this perspective, the greatest risk is volatility. If the movements in an IPO are usually higher than the average, in this case we want to put a good part of the shares in the hands of Robinhood clients, the same ones who have starred in the rise of ‘meme shares’ in the months previous. With this, in addition, the fintech could shoot itself in the foot, since its clients will have less capital to operate on the platform and may even lose money in the operation.

To this must be added that the company’s employees are authorized to sell up to 15% of its shares once Robinhood is listed publicly when the usual thing in the IPOs is that the workers cannot sell their share in the six months following.

In addition, there is a certain danger that technology does not accompany. An oversized demand for Robinhood securities from its clients may prevent the proper execution of purchase orders at the IPO.

Business growth

If there is no doubt there is one thing, it is the spectacular progress of the company in recent months, driven by a pandemic that left much of the planet at home without being able to spend due to mobility restrictions, and with central banks injecting liquidity into the market. system. 

Thus, in 2020 Robinhood entered 245% more than the previous year, up to 958.8 million dollars, which translated into a net profit of 7.2 million dollars. In addition, its assets in custody quadrupled to $80.9 billion.

The trend is still alive in the first half of 2021. In the first quarter, it entered 522 million, 200% more year-on-year, and growth of more than 100% year-on-year is expected in the second quarter, in a range of between 546 and 574 million Dollars. The number of assets in custody at the end of June is estimated at 102 billion.

In addition, its number of customers has doubled in one year, averaging 21.3 million unique users per month in the second quarter of 2021, compared to 10.2 million in the same period of 2020. In the proposed upper range of the IPO, each user of the platform is valued at about $1,600.