Movers and SHAKERS
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The Robinhood IPO in Late July Will Likely Be Disruptive
The long-awaited Robinhood IPO is scheduled to price on July 28. It will then begin trading on the 29th. Robinhood said on Monday (July 19) that it expects to offer 55 million shares at $38 to $42 each. The shares will trade under the ticker $HOOD on the Nasdaq.
At $42 a share, the entire company could be valued at $35 billion.
Story Within the Story
The underlying “big story” with the Robinhood IPO is that the company is breaking new ground to make IPOs more accessible to “average” investors. This is one area where a high percentage of self-directed investors have not been invited onto the playing field, only those who meet certain income or net-worth criteria. The trading app seeks to make IPOs accessible for more retail investors. Robinhood customers who take part in its IPO Access service can buy initial public offering shares of some deals, including Robinhood. The company prospectus has indicated it will set aside as much as 35% of the shares in the IPO for sale to Robinhood customers through IPO Access.
Founded in 2013, Robinhood offers trading without commissions on stocks and other brokered investments. The company is located in Menlo Park, California, and employed 1,281 last year. It competes against established brokers like Charles Schwab (SCHW), TD Ameritrade (owned by Schwab), Fidelity Investments, E*Trade (acquired by Morgan Stanley), and Interactive Brokers Group (IBKR). These firms have eliminated their online trading commissions in part to more successfully compete with the 2013 entrant into their business.
Most shares offered in the IPO (about 52.4 million) are coming from Robinhood. Additionally, Co-founders Vladimir Tenev and Baiju Bhatt are each selling 1.25 million shares. Jason Warnick, chief financial officer, is selling 125,000 shares, according to the filing. CEO Tenev and Bhatt, who is chief creative officer, will own a combined 100% of Class B stock. Tenev will have 26.3% of total voting power after the IPO; Bhatt will have 39%.
Robinhood has raised $5.6 billion in funding. This includes $3.4 billion raised earlier in 2021 in a round led by Ribbit Capital. The prospectus lists 17 investment banks working on the deal. Goldman Sachs and J.P. Morgan are the lead underwriters on the deal. Robinhood, with the updated prospectus, provided estimates for the second quarter, ending June 30. It expects revenue of $546 million to $574 million, more than double the $244 million in 2020’s second quarter.
The company anticipates adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, to come in between $59 million to $103 million. This compares to $58 million in adjusted Ebitda for last year’s second quarter. Robinhood also expects 22.5 million funded accounts, a 25% increase from the 18 million funded accounts it reported for the first quarter of 2021.
The popular trading app also foresees losses of between $487 million to $537 million, which it said was partly due to a change in fair value of convertible notes and warrants following its $3.4 billion fundraise in February. This compares to a profit of $58 million.
In addition to vying for Robinhood shares, IPO Access customers will also have a chance to buy stock in two other businesses. Outbrain, which is an adtech company, and Duolingo, an educational website to learn different languages. These are also available through IPO Access.
The playing field keeps changing for individual investors as barriers such as trading fees, charting packages, quality information, and research from websites like Channelchek, become more prevalent.
A move toward clearing the way to more access to be involved in private deals is being given heightened attention. Robinhood has amplified the conversation with their IPO made available to some retail customers.
Registered users of Channelchek can check their SEC defined qualifications to be shown IPOs available through our parent company by filling out this simple information sheet.
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