Robinhood Markets filed for one of the most anticipated IPOs of the year on Thursday, showing rapid growth during the pandemic and large client numbers.
Robinhood – with approximately 18 million retail customers funded – lost $ 1.4 billion in the first quarter of 2021, according to Robinhood’s S-1 filing with the Securities and Exchange Commission. The company had revenue of $ 522 million in the first quarter, up 309% from the $ 128 million earned in the first quarter of 2020.
The company plans to trade under the symbol “HOOD” on the Nasdaq. The brokerage aims to raise $ 100 million on its public debut.
In its prospectus, the company announced that it had increased its funded accounts linked to bank accounts from 7.2 million in 2020 to 18 million in March this year, an increase of 151%. Assets under management increased from $ 19.2 billion in March to around $ 80 billion. The monthly active users amount to around 17.7 million.
Robinhood plans to allot its retail clients between 20 and 35% of its IPO shares.
The company has 2,100 full-time employees.
Goldman Sachs, Citigroup and JPMorgan are among the leading underwriters of the transaction, along with other banks.
New York-based D1 Partners, Sequoia, Kleiner Perkins, and Google’s venture capital arm GV are some of Robinhood’s largest venture capital investors.
Free trade pioneer
Robinhood was founded in 2013 by current CEO Vlad Tenev and Baiju Bhatt. The Menlo Park, California-based startup pioneered free stock trading, forcing the entire industry to cut commissions in 2019.
Robinhood offers stock, cryptocurrency, and options trading, as well as cash management accounts. Users can make most of the trades for free. The app earns money with the customer’s order flow and a paid premium service.
The stock trading firm took in a record $ 331 million order flow payment in the first quarter of 2021, according to a government filing with the SEC – the money brokers receive for referring customer deals to market makers.
“Since much of our revenue is transaction-based (including payment for order flow or” PFOF “), reduced security pricing spreads, reduced trading activity in general, changes to our dealings with Market Makers and any new regulations from, or any prohibitions on, PFOF and Similar practices can result in lower profitability, increased compliance costs, and increased potential for negative publicity, ”the S1 filing states.
Robinhood – whose long-standing mission has been to “democratize” investments – is considered to be the most important gateway for young investors to access the markets.
The app saw record numbers of new, younger traders going public during the pandemic.
This increase has continued into 2021, characterized by frenzied trading in so-called meme stocks. The stock trading app preferred by millennials found itself in the middle of a firestorm amid GameStop’s short squeeze, partly fueled by Reddit-fueled retail investors.
At the height of GameStop’s rise, Robinhood restricted trading in certain securities due to increased capital requirements from clearing houses.
Robinhood announced on May 20 that it was giving retail investors access to IPO stocks, an area long reserved only for Wall Street banks and experienced investors.
Growing pains
Robinhood’s impressive growth has been fraught with challenges.
On Wednesday, Robinhood was beaten with the FINRA’s largest single fine to date, totaling approximately $ 70 million. The comparison relates to the technical outages Robinhood experienced in March 2020, Robinhood’s lack of diligence before allowing clients to authorize option trades, and the provision of misleading information to clients on aspects such as margin trading.
Robinhood has also faced lawsuits because of its multi-day outages during times when trading volumes were high during the pandemic.
“We have grown rapidly over the past few years and have limited operational experience at the current size of our business. If we cannot manage our growth effectively, our financial performance can suffer and our brand and corporate culture can be affected,” Robinhood said in the section entitled ” Risk Factors “of the Prospectus.
Robinhood paid $ 65 million to the Securities and Exchange Commission after it was accused of misleading clients about how the app makes money and fails to deliver the promised best execution of trades. The SEC’s indictment came a day after Massachusetts regulators filed a complaint accusing the trading app of predatory marketing to inexperienced investors.
Robinhood was also sued for negligent death by the family of Alex Kearns, a 20-year-old client who took his own life last summer over believing he made big losses using the stock trading app preferred by millennials.
In addition, Robinhood boss Tenev had to testify in February before the Financial Services Committee of the US House of Representatives about the GameStop trade mania. Lawmakers criticized the order flow payment, the grant Robinhood receives from market makers like Citadel to enable them to trade.
Paying for the flow of orders is a common practice, but it is often criticized for a lack of transparency.
Robinhood has since taken steps to address some of the controls such as: B. offer more educational services to its customers and remove the confetti feature when investors make trades.
Robinhood was ranked # 1 on this year’s CNBC Disruptor 50 list.
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