Robinhood IPO: 3 Things for Investors to Know

Tuesday, July 20, 2021 | Sean Sechler
Robinhood IPO: 3 Things for Investors to KnowInvestors that have been eagerly anticipating the debut of popular fintech company Robinhood now have some concrete details about what could be one of the biggest IPOs of the year. The company just announced plans to raise $2.3 billion in an initial public offering and expects to sell its shares between the price range of $38 and $42. Robinhood will trade on the NASDAQ under the ticker symbol HOOD and could be worth as much as $35 billion.

The controversial trading application has played a big part in introducing financial markets to an entirely new generation and has certainly made an impact on the brokerage industry after being the first company to offer commission-free trading. There is no official IPO date yet for Robinhood, but it will likely occur in the next few weeks.

While these types of high-profile market debuts can be hit or miss in terms of how the stock performs after going public, it still makes sense for investors to familiarize themselves with the company and why it's generating so much hype.

Here are 3 things for investors to know about the Robinhood IPO:

Founder-Led Company

Many investors are instantly attracted to a company based solely on the fact that it is founder-led. These are businesses in which the founder is president, CEO, board member, or chairman of the company, which means they will play a significant role in driving innovation and growth over the long term. This is the case with Robinhood, as the company’s founder Vlad Tenev and Co-Founder Baiju Bhatt are going to be heavily involved in operations as CEO and Chief Creative Officer of the company, respectively.

The logic here is pretty straightforward – founder-led companies are attractive because founders have a big vested interest in the company's long-term success. A very significant portion of their net worth is tied to how the company performs, and they tend to have an owner’s mindset that leads to quick decision-making and strong company culture. Look at companies like Tesla and Amazon for classic examples of founder-led company success stories. According to filings, Robinhood’s Tenev will control about 7.9% of Robinhood's outstanding stock along with 26.2% of the voting power of the outstanding stock, which means a founder will play a critical role in the company's evolution. 

Strong Top-Line Growth

Robinhood is a company that has experienced impressive top-line growth over the last year, which was largely driven by the global pandemic and record trading volumes. Thanks to plenty of extra cash from stimulus checks, unprecedented market volatility, and stay-at-home orders, the company found itself in a near-perfect situation to grow its business. Robinhood offers equity, cryptocurrency, and options trading on its popular application and saw total revenue grow by 245% year-over-year in 2020 to reach $959 million. For the three months ended March 31, 2021, total revenue reached $522 million, up 309% year-over-year.

These figures are certainly impressive, and the fact that Robinhood’s number of funded accounts increased by 150% year-over-year during the first three months of 2021 to 18 million confirms that the application is as popular as ever. It’s also worth mentioning that Robinhood reported a net loss of $1.4 billion during the first three months of 2021, which tells us that the company is still a way off from consistent profitability. While there is the possibility that slower trading volumes impact Robinhood’s growth going forward, this disruptive company has clearly struck a chord with younger investors and is seeing top-line growth that makes it an intriguing fintech stock to monitor.

Stealing from the Rich to Give to the Poor? Not Exactly…

It’s a bit ironic that a company called Robinhood generates the majority of its revenue by selling its customers' order flows to market makers and high-frequency trading firms. This can lead to larger bid-ask spreads and poor order execution, which both might result in taking money out of retail traders’ pockets. Companies that generate transaction-based revenue in this manner earn a small payment as compensation from directing orders to major market makers like Citadel. Payment for order flow is a big reason why Robinhood can offer commission-free trading, and it is a model that a lot of other big brokerages use.

The controversy surrounding this business model is mainly due to the potential conflicts of interest, as brokers collect more money from routing their customers’ orders to principal trading firms or electronic market makers that can execute the orders at a profit. A broker should be focused on getting its clients the best available prices, and many wonder how Robinhood can do so with its business model. The SEC has already fined Robinhood millions for failing its best execution responsibilities, and it’s certainly going to be interesting to see how the company’s business model holds up going forward.

Featured Article: Trading Halts Explained


7 Electric Vehicle (EV) Stocks That Are Ready to Rebound

The electric vehicle (EV) sector was nearly as frothy as the “pandemic stocks” in 2020. It wasn’t that the EV sector was dormant during the Trump administration.

But, as the saying goes, elections have consequences. And Wall Street understands they can make money in any administration. And as a bet that Joe Biden would win the presidency, electric vehicle stocks soared.

For starters, the Biden administration has already said it will prioritize climate change like no administration ever has. And one way they are going to do that is to incentivize the production and purchase of electric vehicles.

And to take advantage of this shift towards electric vehicle stocks, many private companies raced to get in on the action. The preferred way for many of these companies to go public was via a Special Purpose Acquisition Company (SPAC). A SPAC is basically a shortcut to the traditional IPO process.

However, what goes up frequently goes down and since late February, EV stocks have been getting battered. But this is creating an opportunity because the electric vehicle is still supposed to see exceptional growth over the next five years.

To help you take advantage of this we’ve created this special presentation that includes seven stocks that appear to be ready to take the next leg up.

View the "7 Electric Vehicle (EV) Stocks That Are Ready to Rebound ".


MarketBeat - Stock Market News and Research Tools logo

MarketBeat empowers individual investors to make better trading decisions by providing real-time financial data and objective market analysis. Whether you’re looking for analyst ratings, corporate buybacks, dividends, earnings, economic reports, financials, insider trades, IPOs, SEC filings or stock splits, MarketBeat has the objective information you need to analyze any stock. Learn more about MarketBeat.

MarketBeat is accredited by the Better Business Bureau

© American Consumer News, LLC dba MarketBeat® 2010-2021. All rights reserved.
326 E 8th St #105, Sioux Falls, SD 57103 | U.S. Based Support Team at [email protected] | (844) 978-6257
MarketBeat does not provide personalized financial advice and does not issue recommendations or offers to buy stock or sell any security.

Our Accessibility Statement | Terms of Service | Do Not Sell My Information

© 2021 Market data provided is at least 10-minutes delayed and hosted by Barchart Solutions. Information is provided 'as-is' and solely for informational purposes, not for trading purposes or advice, and is delayed. To see all exchange delays and terms of use please see disclaimer. Fundamental company data provided by Zacks Investment Research.