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Will the Robinhood IPO Further Democratize Finance?

Robinhood’s IPO is Likely to be a Big Focus this Summer, Here’s Why

 

Robinhood, the zero-commission investment app that has forever change what it means to be a self-directed investor, disclosed details of their plans to go public in an initial public offering (IPO). Robinhood’s IPO is already highly anticipated as customers of the service turned the markets on its head last year with their self-styled trading methods. As much as Robinhood was a disruptor in the brokerage industry, customers of the service have inspired disruptions to the entire market. Parts of this IPO may allow the company and its users to force even more change.

 

Details

The public now gets to peek behind the curtain as the required disclosures for an IPO bare so much about the private company that was unknown. In a prospectus made available Thursday (July 1), Robinhood states it had 18 million funded accounts for the quarter ended March 31. This customer base is more than double the 7.2 million accounts held at the end of the first quarter a year earlier. They also show a loss of $1.4 billion during the first quarter. Investors ’ determining value will be weighing account growth against revenues amongst a myriad of other factors.

According to the filings, Robinhood Markets, Inc. looks to raise $100 million. There are no disclosures as to how many shares will be offered or the price range. That information is expected to be brought out in future filings. The $100 million is a common “placeholder” number that will change with future filings. The stock’s symbol will be HOOD and will trade on the Nasdaq market. 

There’s a required 15 day waiting period after an IPO prospectus becomes available publicly before the company can begin marketing its IPO. The timeline allows for the company to become listed as early as late July.

The $1.4 billion in losses for the first quarter of 2021 is up from a $52.5 million loss for the same period in 2020. Revenue more than tripled to $522.1 million from Q1 2020 to Q1 2021. Most of the first-quarter losses were the result of a write-off related to a change in the fair value of convertible notes and warrants stemming from a $3.4 billion fundraising in February.

 

IPO Set-Aside for Customers

Robinhood has as part of its business model and mission to “Democratize Finance for All” this includes working to avail individual investors to IPOs. Customers of Robinhood, who use their IPO Access, can buy shares of certain offerings. The company is setting aside as much as 35% of the as yet issued shares in the IPO for sale to Robinhood customers through this IPO Access feature, (see prospectus).

 

Additional Info

Robinhood has raised $5.6 billion in funding. That includes $3.4 billion earlier in 2021  in a round led by Ribbit Capital with participation from existing investors including ICONIQ Capital, Andreessen Horowitz, Sequoia, Index Ventures, and NEA The firm was valued at nearly $12 billion before the IPO - that number is expected to hit $40 billion or more by the time of the offering.  The prospectus lists 17 investment banks working on the deal. Goldman Sachs and J.P. Morgan are the lead underwriters.

 

Take-Away

Retail investors are being liberated by technology, innovation, and competition. With greater freedoms comes greater responsibility to educate one's self, act responsibly, and follow due diligence best practices. Channelchek is a resource for investors to dig a little deeper into the small and microcap sector to aid in assessing risk/reward possibilities.  Register to receive our daily research and reports here.

 

Suggested Reading:

How Rising Rates Could Make Brokers Like Robinhood More Profitable
Class Actions Suit Against Robinhood

Can Small Investors Compete With Wall Street?
A Feather in the Cap of Robinhood Traders

 

 Sources:

https://blog.robinhood.com/news/2021/2/1/robinhood-raises-34-billion-to-fuel-record-customer-growth

https://www.sec.gov/Archives/edgar/data/1783879/000162828021013318/robinhoods-1.htm

https://www.lw.com/thoughtLeadership/lw-us-ipo-guide

https://www.lw.com/thoughtLeadership/lw-us-ipo-guide

https://www.barrons.com/articles/robinhood-ipo-files-to-go-public-51625161493

https://blog.robinhood.com/news/2021/2/1/robinhood-raises-34-billion-to-fuel-record-customer-growth

 

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