Robinhood, the trading app popular among retail investors, selected Nasdaq as the venue for its listing, according to Bloomberg. Robinhood is also said to be keeping its listing plans open to change. It’s been eyeing an IPO since as early as 2018. The company had more than 13 million users at the end of 2020.
The app’s rapid rise to prominence peaked during the GameStop short-squeeze saga in late January as an army of Reddit day traders sparred with hedge funds to push shares of the video-game retailer to dizzying highs.
Robinhood achieved an $11.7 billion valuation in a funding round last year. It also raised financing this year that will convert to equity upon the completion of an IPO, Bloomberg reported in February. A first tranche will convert at the lower of a $30 billion valuation or a 30% discount to the IPO, with the second at the lower of the 30% IPO discount or a $33 billion valuation, according to Bloomberg.
Robinhood hired Goldman Sachs in December to lead its IPO.
The first-day climbs revealed “euphoria and greed” last seen in the market during the dot-com bubble of the late 1990s, Paul Schatz, the president and chief investment officer of Heritage Capital, said.
“It’s silly season,” and investors need to differentiate between “a great company and a great price or value,” Rich Steinberg, the chief market strategist at the Colony Group, told Business Insider.
Airbnb’s and DoorDash’s colossal post-IPO pops reveal unsustainable euphoria in the stock market, top strategists said.
Some of the year’s biggest initial public offerings took place this week, adding to an already record year for market debuts. DoorDash soared 86% when it began trading on Wednesday after raising $3.2 billion through its offering the day prior. Airbnb leaped 115% when it began trading Thursday afternoon, pushing its market cap above $100 billion and raising $3.5 billion.
The first-day rallies, while extraordinary, show “euphoria and greed” that’s likely not been seen in the stock market since the dot-com bubble of the late 1990s, Paul Schatz, the president and chief investment officer of Heritage Capital, said. Many investors are rushing to the new stocks, wanting to get in at any price, but such massive IPO bounces usually give way to similarly outsize losses, he added.
“It’s silly season,” Rich Steinberg, the chief market strategist of the Colony Group, told Business Insider. “Investors need to distinguish the difference between a great company and a great price or value.”
Both strategists attributed some of that euphoria to the near-zero interest rates expected to stay put over the next three years. The Federal Reserve’s plan to hold rates at record lows leaves investors with fewer places to put their money, as the policy suppressed Treasury yields early in the pandemic. The Fed’s backstop of the corporate credit market placed similar pressure on bond yields.
The combination of near-zero interest rates, a “tsunami of liquidity,” and hundreds of billions in unallocated investor cash fueled the two buying sprees, Schatz said.
The week’s booms might be only the start. Investors could face “complete and utter mania” across the IPO market in the first half of 2021 as more firms look to tap the market while demand remains strong, the Heritage Capital president said. Investors should avoid trying to time such volatile debuts and instead be patient until stock prices better reflect firms’ fundamentals, he added.
“Being the last guy buying the opening of a hot IPO, at the height of this speculative excess in some of these names, typically does not end well,” Steinberg said.
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