SAN FRANCISCO — Robinhood helped
propel a “meme stock” frenzy this year that sent share prices of small
companies on a roller-coaster ride. On Thursday, its own initial public
offering was far more subdued.
اضافة اعلان
Shares in the stock-trading
startup opened trading at $38, the same price as its offering, but then fell as
much as 11%. They ended the day down 8.4% at $34.82, valuing the company at $29
billion and showing that investors were skeptical of Robinhood’s grand mission
of upending Wall Street.
Robinhood’s free stock-trading
service has helped create the conditions for wild trading gyrations in meme
stocks, driven by investors hyping their trades on social media. The company’s
offering is among the largest in a frenzied year for public market debuts,
though few others have had the profile and level of controversy — including
service outages, fines, congressional hearings, protests, and memes — as
Robinhood.
But the tepid trading debut
suggested that there may be limits to investors’ euphoria for IPOs, even in a
blockbuster year for them. There were 213 in the first six months of the year,
more than in any full year for the past decade, according to Renaissance Capital,
which tracks IPOs. This week alone was set to have 25 companies go public in
the United States, making it the busiest in two decades. Instacart, a grocery
delivery company, and Nextdoor, a social network, are among the others expected
to go public this year.
A first-day slump like
Robinhood’s is rare. On average, shares in IPOs in the United States jumped 39%
on their first day of trading this year, according to Dealogic, a data
provider. But they have since fallen by an average of 1.6%, according to Renaissance
Capital.
The unpredictability of
Robinhood’s initial trading was exacerbated by an unusual move by the company,
which has a mission of democratizing finance. Robinhood decided to sell as much
as one-third of its offering to retail traders via its own app. Most other
companies that have gone public have not done this or have offered only a small
number of shares to retail investors.
That offering could have
suppressed early trading, since first-day stock price “pops” are often driven
by demand from retail investors who were shut out of the IPO. Only around 20%
of the offering was sold to retail customers, a person with knowledge of the
offering said, indicating less interest than expected.
Vlad Tenev, Robinhood’s CEO and a
co-founder, said that the IPO was a “celebration of the individual investor in
America.” He added, “We’re just mindful that this is an important moment for
our customers as well.”
Robinhood’s lukewarm public debut
raises questions for the Silicon Valley company after a rocky year.
Early in the pandemic, as the
stock market crashed, Robinhood suffered outages at crucial moments. As the
year went on and the app became more popular, commentators raised questions
about the level of risk that traders were taking, especially with highly leveraged
options trades.
Other aspects of Robinhood’s app,
including confetti explosions and lottery scratch-offs, have drawn comparisons
to gambling. One young customer, Alex Kearns, killed himself last year after a
misunderstanding over debt in his account. Robinhood has since settled with his
family.
In January, stock traders banded
together on social media to drive up the share price of meme stocks including
GameStop, a gaming retailer, and AMC Entertainment, a movie theater chain.
Robinhood had to halt some trades
and raise rounds of emergency funding to cover the collateral needed for its
customers’ trades. Tenev’s cellphone was seized by authorities as part of an
investigation into the situation. Robinhood was sued more than 50 times, and
Tenev was summoned to testify in Congress.
In June, Robinhood paid a $70
million fine to the Financial Industry Regulatory Authority for misleading
customers and harming them with outages.
The controversies did not seem to
hurt Robinhood’s growth. The company added nearly 10 million customers over the
past year, bringing its expected total at the end of June to 22.5 million. It
more than quadrupled its revenue to $420 million in the first three months of
the year, compared with $96 million a year earlier. It also posted a loss of
$1.4 billion, which it attributed to the emergency debt that it had raised because
of the GameStop trading in January.
“Robinhood is a growth stock, and
it has the potential to continue growing, but the market is saying this growth
doesn’t come without risk,” said Josh White, a finance professor at Vanderbilt
University, after Robinhood’s shares started trading. “Maybe it’s not a $32
billion stock.”
Tenev, 34, and Baiju Bhatt, 36,
founded Robinhood in 2013 with an eye toward disrupting the entrenched
interests of Wall Street.
They sought to make stock investing fast and free via
their mobile app. Rather than charge a commission on each trade like
traditional brokerages, Robinhood sold its customers’ orders to Wall Street
firms for a small fee per trade. Eventually, many of Robinhood’s traditional
competitors lowered their trading fees to zero.
In its offering prospectus,
Robinhood said Tenev and Bhatt together would own 16% of Robinhood’s shares
after the IPO, making their combined stakes in the company worth nearly $5
billion. They own a special class of super-voting shares that give them 65% of
the voting power over the company.
Robinhood used its IPO to promote
itself as a democratizing force in finance. In a defiant letter, its founders
said that “finance is now as culturally relevant as music and the arts,” and
that they were pained by news reports that “lambasted” the next generation of
investors.
But in the lead-up to Robinhood’s
listing, some traders said they were already plotting to band together to dump
the stock or bet against it as retribution for the trading halt in January.
That simmering frustration did
not deter Tenev and Bhatt on Thursday. Tenev said he planned to ignore
short-term volatility and focus on Robinhood’s customers and products.
“We can’t control the things that
happen in the market,” he said. “It’s a moment in time.”
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