Robinhood promises to fix ‘the issues’ that outraged customers when it restricted trading in meme stocks

Robinhood logo stocks investing
  • Robinhood CEO Vlad Tenev acknowledged the company angered many customers after it blocked them from trading GameStop and other red-hot stocks.
  • On Saturday, Tenev promised to learn from past mistakes and “ensure they never happen again.”
  • Saturday’s roadshow event comes just days ahead of the commission-free trading app’s hotly anticipated IPO.
  • See more stories on Insider’s business page.

Robinhood knows it angered many retail investors earlier this year when the trading app halted buying of GameStop, AMC, and other meme stocks amid an epic rally – and the company has pledged to earn back the trust of frustrated customers.

In a roadshow event Saturday ahead of its planned initial public offering, Robinhood cofounder and CEO Vlad Tenev said the company is “focusing on is making sure we fix the issues that led to customers being upset.”

The app’s growth has been “amazing,” he said, but “it has led to some real challenges.”

“We’re committed to learn from these experiences and help ensure they never happen again,” he said.

Robinhood drew customers’ ire when it halted the buying of GameStop and other meme stocks during a Reddit-fueled frenzy in January, only allowing users to sell. Outraged traders flooded the app with one-star reviews on Google, lowering its user rating. Many said they would stop using the app in protest, and Redditors on the investing thread Wall Street Bets called for legal action.

Despite the blowback and ensuing regulatory scrutiny, Robinhood, which was launched in 2013 with the mission to “democratize finance for all,” saw a huge jump in new users in the first quarter, according to its S-1 filing. Monthly active users jumped by 6 million in the first three months of 2021 to 17.7 million from 11.7 million at the end of December, an increase of 51%.

The company on Saturday also outlined its plans to continue to grow revenue if US regulators ban payment for order flow, at the heart of its business model. Payment for order flow, or PFOF, is the practice of a brokerage receiving payment from a market maker to send customers’ shares to it. PFOF has drawn criticism from investor advocates who say it encourages brokerages to maximize their revenue at the expense of customers.

The company’s chief financial officer, Jason Warnick, defended PFOF as “a better deal for our customers versus the old commission structure.”

“That said, as we continue to add products and features to our platform we anticipate we will expand the sources of revenues we generate for the company,” he added.

Robinhood said it plans to expand its securities lending business, invest more into Robinhood Gold, its subscription service, and expand internationally. It also said it’s all-in on crypto.

Robinhood’s IPO, planned for Thursday, is among the most highly anticipated of the year. The company will be offering a third of its shares directly to customers through its app, a far greater amount than is usually offered to individual investors during most IPOs. Its livestreamed roadshow was also unique — open to retail investors in what is an event usually reserved for institutional investors.

The Menlo Park, California-based firm in its regulatory filing said it is aiming to raise as much as $2.3 billion in its IPO. It is offering 55 million shares priced at $38-$42, putting its market valuation at $35 billion at the top range.

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The average Brit plans to invest almost 20% more each month after the pandemic, extending the retail trading boom, survey finds

Above angle view of a young man using a trading app.
In addition to executing orders, brokers also provide a range of educational resources and investing advice.

  • The average Brit plans to spend 19% more each month on investing post-pandemic, a Barclays Smart Investor survey says.
  • Half of those surveyed said they will cut back on other spending to fuel their lockdown investing habits.
  • On Monday, trading app Robinhood said it had recorded lower trading levels between March and June.
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The average UK investor plans to increase their investments by 19% each month as COVID-19 restrictions in the country come to an end, extending the retail trading boom that originated during the pandemic, a Barclays Smart Investor survey found.

Younger people are set to increase their investments by an even higher number. The survey, released on Wednesday, found Gen Z investors, many of whom got hooked on investing through the rise of ‘finfluencers’ and financial social media content during the pandemic, are planning to spend an additional 36% a month on investments post-pandemic.

Across all age groups, only 6% of the roughly 2,000 people surveyed, said they planned to cut how much they invest each month. They cited the return of “normality” and the increased spending on activities such as holidays, meals out and weekend trips.

In contrast, around 50% said they would spend less on such activities to support their investing habits.

“The prediction that many will continue, or increase, the amount they invest going forward is likely driven by a rise in lockdown savings, with the ONS reporting that UK household savings are nearing an all-time high.” Clare Francis, director of Barclays Smart Investor said.

76% of those surveyed said they would maintain their investing routine and as few as 4% of those who began investing during the pandemic said they would stop once restrictions in the UK were lifted.

“Today’s findings show just how much the pandemic has changed our approach to saving and investing. As new investors flocked to the stock market last year, it was easy to assume that it was just a lockdown hobby, and that many would go back to their old spending habits when the world re-opened.” Francis said.

Retail trading apps and platforms like Robinhood and eToro, which allow individuals to invest in stocks and digital assets like crypto currencies via their phones or laptops, saw a surge in popularity throughout the pandemic.

Robinhood, which makes its stock-market debut this week, however noted a slowdown of activity on its platform in the second quarter of this year, which was when lockdown restrictions in many countries eased. In its updated prospectus published on Monday, the company said it expected revenue to drop in the three months to September 30 because of the decline in trading activity.

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Robinhood is warning investors in its IPO filing it could become a meme stock and that heightened attention from retail traders is a risk

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  • Robinhood warned investors of price volatility risk if retail-investor interest is high in the IPO.
  • The trading app is making 20% to 35% of its stock available to retail traders through its platform.
  • Other meme stock companies like AMC have warned of volatility and the subsequent risk, as well.
  • See more stories on Insider’s business page.

Robinhood warned investors it’s at risk of becoming a meme stock when it starts trading publicly.

The company, which filed for an initial public offering Thursday, is making 20% to 35% of its stock available to retail traders through its app, meaning a larger proportion of retail investors may participate in the offering “than is typical,” said the company, which will be listed on the Nasdaq under the ticker “HOOD.”

Retail investors have become known for targeting meme-stock companies and driving extreme volatility in share prices. Take GameStop’s epic rally in January and AMC Entertainment’s subsequent rally in May, for example. If they pour into Robinhood shares in its IPO, that could cause price volatility, the company said.

“High levels of initial interest in our stock at the time of this offering may result in an unsustainable trading price, in which case the price of our Class A common stock may decline over time,” Robinhood said in its IPO filing.

Then, if the price is above what investors deem reasonable, some may short the stock, “which would create additional downward pressure on the trading price,” the company said. Robinhood did not immediately respond to Insider’s request for comment on the story.

Other companies popular among retail traders have similarly warned of price volatility – except those warnings didn’t come until after their stocks had already skyrocketed amid its newfound meme status.

In June, AMC Entertainment told investors to prepare to lose all of their money if they invested in the stock amid its dizzying rally. Orphazyme, a small Danish biotech company, told traders they could lose a “significant portion” of their investment if the stock declined from its unprecedented highs. Car rental company Hertz said at one point its stock could be “worthless” and that investing in it involved a “high degree of risk.”

Ahead of filing for its public offering, Robinhood unveiled the new IPO Access feature that would allow users to buy shares of companies at the IPO price, before the stock starts trading on the open markets.

Robinhood, which launched in 2013, said those shares typically only go to institutions or wealthier investors. “Here’s to democratizing IPOs for all!” the company said in the May press release about the new service.

Read more: An investment chief for Lombard Odier says a rise in volatility could knock 10% off the S&P 500 in the next six months. He breaks down the 10 ways to shield, or boost, a cross-asset portfolio

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Chinese ride-hailing company Didi became a retail favorite on its first day of trading

didi dirver
Reuters/Jason Lee

  • Didi has become a retail-investor favorite on its first day of trading, Fidelity data show.
  • The stock topped retail buys in Exela Technologies and AMC Entertainment.
  • Shares of the Chinese ride-hailing company surged as much as 28% during its IPO Wednesday.
  • See more stories on Insider’s business page.

Chinese ride-hailing company Didi has already become a retail-trader favorite in its first day on the public markets, Bloomberg first reported.

According to data from Fidelity, Didi shares ranked number one among retail traders Wednesday, while Exela Technologies, which has seen heightened interest from Reddit investors this week, was second, and well-known meme-stock AMC Entertainment was third.

Didi had more than 32,000 buy orders as of 3:15 p.m. in New York, compared to Exela and AMC, which each had about a third of that, the data showed.

Didi’s debut is the second largest among Chinese companies, after e-commerce giant Alibaba’s initial public offering in 2014. The shares soared as much as 28% in their first day of trading, giving Didi an approximate $86 billion valuation, Markets Insider reported.

The valuation makes Didi the second largest ride-hailing app in the world after Uber, which is valued at $93 billion.

Rumors about a potential IPO spread for several years before the company eventually filed its prospectus earlier this month, Fortune reported. Among Didi’s largest shareholders are investment firm SoftBank, which has a 21.5% stake, Uber, which has a 12.8% stake, and Tencent, which has a 6.8% stake, Fortune said.

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SoFi is soaring in popularity on Reddit as retail investors look for opportunities in the fintech company following its merger with a Chamath Palihapitiya-backed SPAC

Chamath Palihapitiya
  • Chamath Palihapitiya-backed SoFi Technologies is gaining steam among Redditors.
  • Comments about the company, which went public last month, surged on Reddit this week.
  • Retail traders noted the end of the post-merger lockup period and the high short interest.
  • See more stories on Insider’s business page.

SoFi Technologies is quickly gaining traction among retail investors.

The fintech company that went public via a Chamath Palihapitiya-backed SPAC last month has seen an influx of retail flows in the last week, according to data from Vanda Research.

SoFi retail inflows Vanda Research

In a note, Vanda analyst Giacomo Pierantoni and senior strategist Ben Onatibia said the stock is one that “looks increasingly likely to capture some notoriety” as comments about the company accounted for 20% of activity on Reddit’s Wall Street Bets forum in the last day.

The analysts noted the end of the post-merger lockup period and the rise in short interest as “the two main arguments to buy the stock” among retail traders.

One Redditor, who received 500 upvotes, said in a post that the end of the lockup period Monday would give retail traders an opportunity to buy into the stock. Shares dropped 2% Tuesday, and Wednesday they rose 2.1% at 8:40 a.m. in New York.

Another Redditor, who received 1,600 upvotes, posted a bullish view on the company, saying it has a lot of potential.

“The moment I heard SOFI was going public was the moment I dropped a lot of money into it, used the app for a long time and they’re going to be dominating the FinTech sector,” the Redditor said.

Redditors, who have become known to invest in heavily shorted companies, also noted SoFi’s high short interest rate. According to Fintel.io, the company has a short-volume ratio of 21%.

Travis Rehl, the founder of Reddit investing-tracker HypeEquity, said in a morning note that many retail investors looking to hold SoFi long-term are comparing it to the next Square or PayPal. Among other financial services, the company has a trading platform called SoFi Invest.

The platform recently announced it would allow users to get in on the initial public offerings of four Palihapitiya-backed blank-check companies. Self-proclaimed “SPAC king” Palihapitiya is a favorite among retail investors, as other companies backed by him, including Clover Health and Virgin Galactic, have become meme stocks.

Read more: These 5 stocks have definite potential for a meme-driven short-squeeze this week, according to Fintel. One of them is even stealing the AMC and GameStop spotlight with its celebrity SPAC status.

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A sharp downturn won’t scare away the horde of retail investors reshaping the market. We spoke to 5 experts and day traders who explained why they’re here to stay.

Wall Street Bets Reddit Retail Traders GameStop
In this photo illustration the WallStreetBets page seen in the background of a silhouette hand holding a mobile phone with Reddit logo. Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images

  • The surge of retail investors will likely be in the stock market for the long haul, experts told Insider.
  • Fee-free trading, access to market data, and social media, are making it easier to trade.
  • “They see it as more than just a trade or an investment. They see it as a movement,” one expert said.
  • See more stories on Insider’s business page.

The horde of retail traders who have flooded the stock market in the past year are here to stay – even when the market turns sour, experts told Insider.

Since January 2020, retail investors bought $400 billion in stocks, doubling their total equity purchases from years prior, according to Vanda Research. Stock buying had been on the upswing for years before that though as more everyday investors had better access to market data and fee-free trading, thanks to brokerage apps like Robinhood, among others.

Dave Lauer, a stock market structure expert who has been interacting with retail investors, said the COVID-19 pandemic simply accelerated the number of day traders joining the market. But now that they’re here, “they’re here to stay,” he said.

For the first time, he’s seeing hundreds of thousands of people wanting to learn about how markets work and improve them.

“They see it as more than just a trade or an investment,” he said. “They see it as a movement.”

Matt Kohrs, a 26-year-old day trader with more than 300,000 followers on his YouTube trading channel, said the community of retail investors came together because they’re “tired of the tilted game” of Wall Street.

“The driving factor is a huge social-cultural movement,” he said. “It just happens to be playing out on a stock chart.”

Retail traders have joined the stock market in droves before.

Kristina Hooper, chief global market strategist at Invesco, said the dot-com bubble in the 90s had an “extraordinary level” of retail participation.

During that time, “it was not Reddit and Wall Street Bets and forums; it was taxi drivers in New York City talking about their favorite dot-com picks,” said Darren Schuringa, the founder of ASYMmetric ETFs, a firm designed to empower retail investors.

The difference now, according to Tuttle Capital Management Chief Executive Officer Matt Tuttle, “is the access now to all sorts of information, it’s the ability to trade for free and to trade quickly, and it’s the fact that they’re connected.”

That connection, Tuttle said, has given them the buying power of institutional investors.

For example, in January, hordes of day traders mobilizing on Reddit drove shares of GameStop to sky-high prices and caused short-sellers to lose billions. The event started the trend of “meme stocks,” and since then, the traders have driven share prices of multiple other companies, like AMC Entertainment and BlackBerry, up as well.

“They’ve got some power,” Tuttle said. “What history tells you is people who have power don’t give it up, at least not willingly.”

Even a market correction isn’t likely to faze retail traders, though they’ll likely face losses and some will exit, the experts said.

Hooper said a market correction could be on the horizon, though it will be short lived and won’t dent retail appetite.

“If you only have a downturn that lasts a few days and then stocks start going back up, will it shake out a lot of retail investors? Probably not,” she said.

However, a correction could hit meme stocks “quite hard,” she said, “because if there is one area where the fundamentals aren’t backing it, it’s meme stocks.”

Lauer, on the other hand, said meme stocks might avoid a correction because they appear to trade “relatively independent of what the market is doing.”

Kohrs said because retail traders make money off volatility, they could have even “bigger gains” in a bear market if executed properly.

“If you have proper risk management,” Schuringa said, “you can make money on both sides of the trade.”

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Bank of America resumes coverage of Bed Bath & Beyond, says stock is trading on fundamentals again as meme-stock madness fades

Bed Bath & Beyond
  • Bank of America analysts resumed coverage of Bed Bath & Beyond after meme mania cooled down.
  • “The momentum from meme investing has likely passed,” said the analysts who briefly paused coverage.
  • BofA rated the stock as a buy with a $38 price target.
  • See more stories on Insider’s business page.

Bank of America analysts say meme mania for Bed Bath & Beyond has cooled off, prompting them to resume covering the stock for investors.

In a Thursday note, Bank of America analysts led by Curtis Nagle said Bed Bath & Beyond shares are “once again trading on fundamentals,” and rated the stock to a buy rating. The analysts stopped coverage of the company on June 3 after the price surged 62% in a single day amid hype from retail traders.

The Union, New Jersey-based home goods retailer became a meme stock in January, along with companies like AMC Entertainment and BlackBerry, after retail traders poured into shares of GameStop to cause a short squeeze. Then in June, retail traders again hyped up shares of Bed Bath & Beyond as other meme stocks also came back into the spotlight.

“While not quite as extreme as GameStop, for example, Bed Bath & Beyond did see a large increase in mentions on retail investor forums in January and late May through early June,” the analysts said. But, “over the past two weeks, Bed Bath & Beyond has seen a sharp reduction in both those factors, which suggests that the momentum from meme investing has likely passed.”

Since the craze earlier this month, shares are trading closer to pre-surge levels, and the social-media hype, trading volumes, and short interest, have all moderated, the analysts said. With that, they added a $38 price target for the stock, which traded at $29.89 at at 11:26 p.m. in New York.

The analysts attributed their bullish view to Bed Bath & Beyond’s long-term turnaround, including the company’s largest-ever new product rollout by year-end, store resets that will improve the shopping experience, closures of 200 underperforming locations, and a pickup in back-to-college and wedding registry purchases as the economy re-opens.

Read more: Bank of America says to buy these 31 small- and mid-cap stocks with average implied upside of nearly 30% as they represent its best ideas for the second half of 2021

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A majority of Millennial and Gen-Z investors are taking personal loans or borrowing from friends and family to invest in stocks

Happy Stock Market Investor
Caroline Purser/Getty Images

  • A majority of Millennial and Gen-Z investors are borrowing money to invest in stocks.
  • Most took out a personal loan or turned to family and friends, a new survey shows.
  • Borrowing puts investors into “risky territory” said Magnify Money, which conducted the research.
  • See more stories on Insider’s business page.

Millennial and Gen-Z investors in the US are borrowing money to invest in stocks, a survey from LendingTree’s Magnify Money shows.

80% of Gen-Z investors and 60% of Millennials surveyed said they took on debt to invest. The survey gathered responses from about 2,000 US consumers from March 30 to April 6. Of those surveyed, about half were investors.

Young investors were most likely to take out a personal loan – oftentimes borrowing $5,000 or more – to invest and turned to family and friends for funds second, the data showed.

Older generations were much less likely to take on debt, with only 28% of Gen Xers and 9% of Baby Boomers borrowing in order to invest, the survey showed. Of those who borrowed money, more than half said they’d do it again.

Ismat Mangla, MagnifyMoney senior director of content, said borrowing puts investors into “risky territory,” and they need to determine if they can afford to take that risk.

“You want to be confident that your investment gains will exceed the costs of your loan. If they don’t, you should be confident that you could take that financial hit,” she said.

Millennials and Gen Zs have joined the market in droves since the COVID-19 pandemic began, and many have used social media sites like TikTok, which can be sometimes be a source of questionable advice, to educate themselves on investing. Data from Vanda Research shows retail traders purchased an additional $400 billion in stocks since January 2020, doubling their total purchases from the year prior.

Many of the young investors have poured into the new phenomenon of meme stocks – a trend that started earlier this year when retail traders coordinating on social media caused shares of GameStop to skyrocket. Since then, companies, including AMC Entertainment and BlackBerry among others, have seen sky-high prices largely thanks to the retail trade.

Wall Street analysts have said meme-stock prices are disconnected from reality, making them a riskier bet and nearly equivalent to gambling. And meme-stock companies have even begun to warn retail traders that they could lose all their investment making risky bets on stock prices trading above fundamentals.

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Goldman Sachs bought into the meteoric rise of a Danish biotech stock that became a meme last week – then sold

Goldman Sachs
REUTERS/David Gray/File Photo

  • Goldman Sachs bought a 5.58% stake in a tiny Danish biotech firm that became a meme stock.
  • It dropped below the 5% threshold the next day when the stock dropped from its meteoric rise.
  • The Danish firm Orphazyme has been on a wild ride since June 10 when it rose 1,387% in a day.
  • See more stories on Insider’s business page.

Goldman Sachs bought – then sold – a noteworthy stake in a tiny Danish biotech firm that became a meme stock last week.

Orphazyme, a Copenhagen, Denmark-based biotech firm, said the bank’s holdings increased to 5.58% of the company’s shares as of June 16. Then, just a day later, the bank’s stake fell below the 5% threshold that triggers a filing.

Orphazyme’s American Depository Shares rallied 61% on June 16 and then fell the following three days. The bank didn’t respond to Insider’s request for comment on the matter.

The stock has been on a wild ride since June 10 when it surged as much as 1,387% in a single trading day. The company rose to popularity on Reddit’s Wall Street Bets that day, though some retail traders questioned if the trade was a hedge-fund pump-and-dump.

In a statement about the share surge, the company said it wasn’t aware of any material changes to the business that would explain the stock move and warned investors they could lose money if the price dropped.

The price of the company’s American Depository Shares has surged then plummeted twice this month. Wednesday, the price was on the rise again, gaining as much as 53%.

The company, founded in Denmark in 2009, is researching and developing heat-shock proteins to treat people living with rare neurodegenerative diseases, according to its website. It went public in 2017. Orphazyme did not immediately respond to Insider’s request for comment.

Orphazyme isn’t the only small firm to be added to the meme-stock basket recently. This week, another small biotech firm, Atossa Therapeutics, saw a huge rally when retail traders poured into the stock, while a tiny Texas oil driller that’s previously warned it could go out of business also surged.

The meme-stock frenzy began earlier this year when investors mobilized on social media like Reddit caused GameStop’s share price to soar. Since then, many other stocks have been pulled into the frenzy.

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GameStop is headed for inclusion in a large-cap stock index after its dizzying surge to record heights – but AMC will miss out with its spike coming after the deadline

gamestop store
John Minchillo/AP

  • GameStop could be listed alongside Amazon and Microsoft if included on the Russell 1000 Index.
  • AMC missed the May 7 cutoff to reach a capitalization higher than $7.3 billion.
  • The stocks have ballooned to the largest on the Russell 2000 Index thanks to retail traders.
  • See more stories on Insider’s business page.

GameStop could be one of the newest stocks on a list of the 1,000 largest companies thanks to the army of retail traders that have pushed the share price to dizzying highs.

But AMC Entertainment might have just missed the cutoff.

To be included in the Russell 1,000 Index – a group of the largest US stocks – a company should be worth at least $5.2 billion by May 7, according to a chart from FTSE Russell, which creates the indexes.

That puts retail-trader icon GameStop, which was worth about $12 billion as of the market close on May 7, in the running to be included. Being added to the index means GameStop would stand alongside behemoths like Apple, Microsoft, and Amazon.

But movie-theater chain AMC Entertainment, which led the lastest round of meme-stock mania over the last few weeks, missed the deadline to be included. The company was worth $4.3 billion as of the May 7 market-close. A couple weeks later, retail traders – mobilized on social media investing platforms like Reddit’s Wall Street Bets – forced a record rally in the stock. The company was worth $28.3 billion on Wednesday.

Another 56 stocks alongside GameStop will likely join the reorganized Russell 1000 Index when it’s officially reconstituted after the market close on June 25, Bloomberg reported, citing research from Goldman Sachs. Goldman Sachs did not immediately respond to Insider’s request for comment.

GameStop and AMC are currently listed on the Russell 2000 and have ballooned to the highest-valued stocks as a result of their meme-stock status, according to Bloomberg data.

Catherine Yoshimoto, FTSE Russell director of product management, said in a June 4 press release there has been a “resurgence in market capitalizations of small cap companies in the Russell 2000 reflecting the overall bounce back of US equity markets following the COVID-19 recession in early 2020.”

Meme stocks, many of which are small- to mid-cap companies, came into the spotlight earlier this year when retail traders drove a record rally in GameStop to squeeze short sellers. Other companies, such as BlackBerry, AMC, and Nokia, also skyrocketed. Since then, more companies have been added to the meme-stock bucket as retail traders continue to drive volatility in fan favorites.

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