Robinhood prices IPO at $38 per share, valuing the online brokerage app at $32 billion

Robinhood on cellphone
  • Robinhood priced its IPO at $38 per share on Wednesday, valuing the company at about $32 billion.
  • The online brokerage app revealed surging growth in its S-1 filing amid the COVID-19 pandemic and government stimulus checks.
  • Robinhood is set to trade on the Nasdaq under the symbol “HOOD” on Thursday.
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Robinhood priced its IPO at $38 on Wednesday, valuing the online brokerage app popular with retail investors at roughly $32 billion. The Wall Street Journal first reported the pricing.

Robinhood’s IPO pricing came it at the bottom end of the price range it had initially been targeting during its roadshow of $38 to $42 per share. Robinhood last raised $3.4 billion earlier this year, with shares trading on private secondary markets at a valuation around $40 billion.

The company has seen explosive growth amid the COVID-19 pandemic and government stimulus checks, with millions of Americans becoming first time investors in the stock market. Robinhood has more than 18 million accounts and 17.7 million active monthly users.

While the brokerage firm is not yet profitable, the company saw revenue grow 245% to nearly $1 billion in 2020. That revenue growth accelerated in the first quarter of 2021, surging 309% to $522 million, according to its S-1 filed with the SEC last month.

Much of that growth is coming from options and crypto trading, two highly speculative areas of markets than often lead to either big losses or massive fortunes.

Unique to Robinhood’s IPO is the company’s decision to allocate up to 35% of its IPO shares to users of its app. Retail investors are often restricted from investing in IPOs at the pricing afforded to institutional investors.

While Robinhood’s IPO represents a big milestone for the company, there is still a long way to go before co-founders Vlad Tenev and Baiju Bhatt can cash in on their hefty compensation awards. Both founders will be awarded $1.4 billion if Robinhood’s stock price reaches $101.50 by 2025.

Robinhood is set to trade on the Nasdaq under the symbol “HOOD” beginning on Thursday.

Read more: Top 16 meme stocks this week on Reddit: Tesla tops the charts after record earnings while Chinese stocks get smacked amid brutal regulatory crackdown

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

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  • 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 said it expects to pay a $30 million fine as part of anti-money laundering probe of its crypto business

  • Robinhood said it expects to pay a $30 million penalty related to an anti-money laundering probe of its crypto business.
  • The penalty would be on top of a $70 million fine from FINRA, and a $65 million settlement with the SEC.
  • The disclosure came in an amended S-1 filed with the SEC on Monday.
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Robinhood said it expects to pay a $30 million penalty in relation to an anti-money laundering probe of its cryptocurrency business, according to an amended S-1 filed with the SEC on Monday.

The online trading app said that in July of 2020, the New York Department of Financial Services said Robinhood’s crypto unit had a number of “matters requiring attention,” primarily focused on anti-money laundering and cybersecurity-related issues.

In March, a subsequent investigation by the Consumer Protection and Financial Enforcement division of the NYDFS found alleged violations of anti-money laundering and New York Banking Law requirements, “including the failure to maintain and certify a compliant anti-money laundering program,” according to the filing.

Other violations include of cybersecurity and virtual currency requirements, “including certain deficiencies in our policies and procedures regarding risk assessment, lack of an adequate incident response and business continuity plan, and deficiencies in our application development security,” the filing said.

Robinhood said its crypto business has reached “a settlement in principle with respect to these allegations, subject to final documentation.” The brokerage firm expects to pay a monetary penalty of $30 million and engage a monitor, likely to prevent further violations.

This isn’t Robinhood’s first multi-million dollar penalty in relation to its business operations. In December, the company agreed to pay a $65 million settlement with the SEC for misleading its customers about revenue sources and failing to satisfy its duty of best execution for customer trades.

And in June, Robinhood agreed to pay a $70 million fine with FINRA to settle claims that the brokerage misled millions of customers, approved ineligible traders for risky strategies, and didn’t supervise technology that locked millions out of trading, the regulator announced today.

The $165 million in total one-time fines Robinhood has been ordered to pay represent 32% of the company’s first quarter revenues of $522 million.

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Robinhood plans to raise as much as $2.3 billion in its upcoming stock-market debut

Robinhood logo displayed on a phone screen and representation of cryptocurrencies are seen in this illustration photo taken in Krakow, Poland on June 29, 2021

Robinhood is aiming to raise as much as $2.3 billion in its upcoming stock market debut, the company said in a filing with the Securities and Exchange Commission on Monday.

The popular investing app said it’s offering 55 million shares priced at between $38 and $42 each during its roadshow. At the top end of that range, Robinhood could have a market valuation of $35 billion.

It plans to list on the Nasdaq under the ticker symbol “HOOD” and is expected to go public by the end of next week. Under its new program to “democratize” IPOs, Robinhood plans to allocate 35% of its IPO shares to retail investors, The Wall Street Journal reported.

If it hits $101.50 per share in the next four years, cofounders Vlad Tenev and Baiju Bhatt could receive up to $1.4 billion worth of Robinhood stock each, an SEC filing from June said.

Robinhood, which counts 17.7 million monthly active users, holds $81 billion in assets under custody, its filing says. It also says it has 22.5 million funded accounts, or those tied to a bank account, up from 18 million in the first-quarter this year, far above the 40,000 accounts it counted in 2014.

Revenue for the first quarter of 2021 came in at $522 million, up from $128 million in the same period last year. The company expects to report second-quarter revenue in the range of $546 million and $574 million, marking a 129% jump from the $244 million made in the second-quarter last year.

Robinhood was valued at $11.7 billion in a private fundraising round late last year. But based on trading in the secondary market, Bloomberg Intelligence analyst David Ritter had previously estimated it could be worth as much as $40 billion.

Goldman Sachs, Barclays, Citigroup, and JPMorgan are the lead underwriters on Robinhood’s IPO, among other banks.

Read More: Memeification vs manipulation: The creator of a site designed to find meme stocks shares how to track Reddit momentum and find frauds – and lists the 9 meme stocks with the most loyal fanbases

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A ‘finfluencer’ with millions of followers on social media says Robinhood and other trading apps might do more harm than good to young investors

Tori Dunlap
  • Retail trading apps could cause issues for young investors according to money expert Tori Dunlap.
  • She thinks the apps do not educate their users enough and are not inclusive to minority groups.
  • Robinhood was recently forced to pay $70 million after FINRA accused the app of causing harm to customers.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Young investors, and Gen-Zers in particular, are pouring their spare cash into things like cryptocurrencies and meme stocks, drawn in by the social media communities that have banded together to take on Wall Street giants, and popularized by retail trading apps like Robinhood.

As positive as it is to see young people get involved with their own finances, these apps might be doing more harm than good, seeing as they don’t educate their users enough and aren’t particularly inclusive places, according to ‘finfluencer’ and personal finance expert Tori Dunlap.

Dunlap, who has millions of followers on Instagram, TikTok and Twitter and runs personal finance education and advice brand ‘Her First $100K’, says the problem with these apps is they are appeal to new, young investors that are often unaware of risks, or what a good investing strategy is due to a lack of education on the subject.

“They’re focusing on young people, which is great, but young people who don’t really know what they’re doing. They don’t really know how to invest, don’t really know how to grow their wealth and so I think that that’s a huge risk.” she told Insider in an interview. “Going after this certain population is great, but what are you doing to educate them? What are you doing to make they understand a risk before, you know, the risks involved before they start investing?” she said.

Dunlap knows a thing or two about looking after her finances. She started her first business age 9 and by the time she was 25, she’d built up savings worth $100,000.

Retail trading has soared in popularity over the past 18 months throughout the COVID-19 pandemic, with apps like Robinhood or platforms like eToro seeing booming business. But they’re not without pitfalls.

Just last month Robinhood agreed to pay nearly $70 million to US regulators to settle claims it had misled millions of customers, approved ineligible traders for risky strategies, and didn’t supervise technology that locked millions out of trading. This was the largest fine on record to the Financial Industry Regulatory Authority.

Alongside this, retail trading apps and social media influencers who talk about finance have pushed the idea of democratizing trading, meaning that anyone can do it and they don’t necessarily need financial professionals to help them make money from investing.

Robinhood was not available for comment when contacted by Insider.

Dunlap said apps like Robinhood have done well at making investing more interesting and appealing to young people , which she thinks is key in terms of them starting in growing their wealth early in life, but she also believes they still have a long way to go.

Trading apps often “gamify” activity, rewarding users with little bursts of digital confetti on their screens when they make a trade, or playing little jingles to notify them of updates. There have been well-documented cases of users that have suffered the equivalent of gambling additions as a result, for example.

Another one of her qualms is that the community the trading apps create aren’t especially inclusive. The lack of educational tools is one issue, but Dunlap said she thinks it reaches all the way to these apps are designed, which she describes as ‘bro-y’.

“It’s not really a democratization if it doesn’t involve minority groups, if it doesn’t also involve women, and people of color and other members of other minority groups,” Dunlap said. “Yes, it’s, like, appealing to younger people, but it’s not straight white male hedge fund managers, it’s just straight white male ‘finance bros.'”

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Robinhood revealed it made $30 million from clients trading dogecoin in the 1st quarter – and that amount likely skyrocketed ahead of the company’s IPO

NYSE trader

Robinhood’s S-1 IPO filing released last week revealed that the company generated nearly $30 million in revenue from trading in dogecoin in the first quarter of 2021.

That revenue figure is likely to explode in the second quarter, as dogecoin spiked more than 1,375% amid a surge in popularity in part driven by tweets and a SNL appearance from Tesla CEO Elon Musk.

Robinhood’s significant revenue derived from dogecoin trading is a reason the meme-inspired cryptocurrency was included as a risk factor in the online trading app’s IPO filing.

“A substantial portion of the recent growth in our net revenues earned from cryptocurrency transactions is attributable to transactions in Dogecoin. If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected,” Robinhood warned prospective investors.

But that risk likely won’t be felt by investors in the second quarter of 2021, when cumulative daily trading volumes in dogecoin soared 258%, based on historical data from CoinMarketCap.

The trading volume in dogecoin in the first quarter of 2021 was $243 billion. On average, $2.7 billion worth of dogecoin exchanged hands on any given day in the first quarter, and dogecoin was just $0.05 on March 31.

Fast forward to the second quarter, and the cumulative trading volume in dogecoin soared to $866 billion. On average, $9.5 billion worth of dogecoin exchanged hands on any given day in the second quarter, and dogecoin peaked at about $0.74 on May 8.

That could translate into Robinhood generating more than $100 million in revenue from dogecoin transactions next quarter. But a steep swing lower in dogecoin revenue is likely for Robinhood going forward, given that average daily trading volumes in dogecoin has fallen to $5.8 billion since its peak.

Following a 80% decline in dogecoin, combined with recent tweets from Elon Musk having little impact on its price, it seems unlikely dogecoin will ever generate as much revenue for Robinhood as it did over the past six months.

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Days after Charlie Munger called Robinhood ‘a gambling parlor,’ the free-trading app revealed options trading as its largest source of revenue

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Warren Buffett, CEO of Berkshire Hathaway, and vice chairman Charlie Munger.

Just two days after Charlie Munger of Berkshire Hathaway called Robinhood “a gambling parlor,” the free-trading app said it derives a majority of its revenue from options trading.

The comments from Warren Buffett’s right-hand man came in an interview with CNBC on Tuesday night, in which the billionaire investor said, “it’s telling people they aren’t paying commissions when the commissions are simply disguised in the trading.”

On Thursday, Robinhood filed its S-1 with the SEC, a necessary step the company has to take prior to going public. The document revealed the underlying drivers of Robinhood’s business, from options, equities, and crypto trading, to securities lending and payment for order flow.

In 2020, Robinhood generated $720 million in revenue, of which 61%, or $440 million, was derived from options trading. Robinhood’s options trading revenue grew 298% in 2020, relative to 2019, as the pandemic and government stimulus checks led to a boom in stock market trading by retail investors.

Options trading is often viewed as a much riskier form of trading relative to stock trading, as it gives investors leverage to increase their exposure to short-term or long-term moves in the stock market.

While less risky option trading strategies exist, like selling covered calls on an underlying stock holding, a bulk of the options trading among Reddit “YOLO” investors tends to be buying directional put or call options with short-term expiration dates. Unless timed properly, these types of options trades can lead to a loss of nearly all invested capital.

“[Robinhood is] a gambling parlor masquerading as a respectable business,” Munger said.

Robinhood probably disagrees with Munger. In the company’s S-1 filing, it laid out how it’s democratized stock market investing for 18 million users through $0 trading commissions, an easy-to-use app, and education initiatives.

The company said more than 50% of its customers say they are first-time investors.

A customer named Angelina was quoted in Robinhood’s S-1 as saying, “The investor in my head was someone who wore a suit and a tie. Robinhood changed that for me.”

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Is Robinhood safe? Experts weigh in on using the commission-free investing app

Robinhood app on phone
Robinhood offers commission-free trading on stocks.

  • Robinhood, the app that lets users invest in stocks without paying fees, has earned both popularity and controversy.
  • Two financial advisors told Insider that while Robinhood is safe to use, the app’s language and design can be misleading to users.
  • Always consult a personal financial advisor before investing to avoid unexpected financial risks or crises.
  • Visit Insider’s Tech Reference section for more stories.

The online brokerage platform Robinhood launched nearly a decade ago but has gained popularity more recently. The app and web interface allow users to buy, sell, trade, and invest in stocks and other investments (like cryptocurrency) without paying commission fees.

According to Douglas Boneparth, certified financial planner and president of investment advising company Bone Fide Wealth, Robinhood is “geared toward the next generation of investors.”

Related Article Module: Robinhood review: Avoid trading commissions and purchase specialty investments such as cryptocurrencies

But that forward focus has led to the company being investigated for “gamifying” investing. The company is currently facing 50 active lawsuits and increased regulatory scrutiny, in part because it restricted trading during the GameStop stock saga in January.

Robinhood’s rise has been rocky, leading many to wonder whether it’s safe to use.

The short answer? “Trade at your own risk,” Boneparth said.

Is Robinhood safe? Mostly

When setting up an account with Robinhood, users give their personal information, like their age, net worth, income, and social security number. According to Nickolas Sanchez, a certified financial planner at Financial Architects, this is an entirely normal process to trade stocks under SEC guidelines.

“This isn’t a Robinhood-specific requirement,” he said. “If you want to invest, even at the most reputable firms, you are going to have to give underlying personal information.”

The Securities and Exchange Commission requires these details to avoid fraud and especially risky investments. And just like any other brokerage firm, Robinhood must abide by the fair practice regulations set by the SEC, including providing proof of fair dealings. Otherwise, they face being hit with fines or civil lawsuits.

Additionally, Robinhood is a member of the Securities Investor Protection Corporation, which offers financial protection if a brokerage firm were to fail. The SIPC can replace up to $500,000 for both securities and cash, including a $250,000 limit for cash only, in missing customer property.

So if Robinhood went bankrupt, as an investor on that brokerage platform, your funds could be transferred to another brokerage firm or refunded to you. However, investments in cryptocurrency are not protected by either the SIPC or Robinhood.

Finally, Robinhood ensures its users that their passwords and “sensitive details” are encrypted. Once you verify your banking information, Robinhood states it will “never access them again.” The app also offers two-factor authentication via SMS text message and third-party authentication apps for additional security protection.

But of course, you should always take your data security into your own hands by using a strong password that you change regularly.

The risks of using Robinhood to buy, sell, and trade stocks

Anyone can sign up and create a trading account with Robinhood within minutes, without any real training on the stock market or educational resources on how investing works. That, according to Boneparth, may be a disservice to its users.

The financial expert pointed to the case of 20-year-old Alexander Kearns, who died by suicide after thinking he lost $730,000 on Robinhood.

Man texting on phone
Robinhood’s app design may incentivize risky investing.

“Sure, Robinhood will tell you if you go to their website they have blogs and articles about investing, but that’s no different than any other brokerage,” Boneparth said. “At the end of the day, Robinhood is a business. They don’t have a fiduciary obligation to their clients. They facilitate a service.”

He added that there are no risks specifically inherent to Robinhood’s platform, but advises his clients to bounce investment ideas off their personal investment advisor.

Sanchez agrees, telling Insider that the minimalistic design of the app, coupled with the commission-free trading feature, may “incentivize a lot of activity,” which could pose a potential risk to one’s portfolio.

“One school of thought is that the best approach to investing – and there’s really no right answer – is to buy and hold stocks in quality companies that you believe in, that you trust, and that you use.”

In short, don’t get caught up by the allure of free trading. Treat Robinhood like any other broker, and be careful with how you spend your money.

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9.5 million Robinhood users traded cryptocurrencies in the first quarter, compared to 1.7 million in the last quarter of 2020

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Vladimir Tenev, co-founder of Robinhood.

  • Robinhood said the number of customers trading cryptocurrencies on its platform reached 9.5 million in the first quarter.
  • The quarterly figure is a surge from 1.7 million cryptocurrency customers in the final quarter of 2020.
  • Robinhood’s update highlights the fast-growing popularity of digital assets.
  • See more stories on Insider’s business page.

Trading app Robinhood said 9.5 million customers traded cryptocurrency during the first quarter of 2021, soaring from 1.7 million crypto traders on the platform in the last quarter of 2020.

Robinhood shared the figure in a blog post on Thursday in which it highlighted its Robinhood Crypto platform that it launched in 2018. “This year in particular has been a big one,” it said about activity in 2021.

There’s been a pickup this year in the number of financial institutions and other companies saying they will allow their customers to use or to gain access to cryptocurrencies and the blockchain technology that backs them. Investment bank Goldman Sachs is looking into ways to support their clients’ desire to own cryptocurrencies and other digital assets, CEO David Solomon said Tuesday in a CNBC “Squawk Box” interview. Tesla’s CEO Elon Musk last month said the electric vehicle maker will accept bitcoin as payment.

Robinhood said its customers have access to seven tradable coins including bitcoin, dogecoin and ethereum.

“The prospect of an open and decentralized global financial system, one where everyone can have access to financial services, strongly aligned with Robinhood’s mission–so democratizing cryptocurrency trading felt like a natural next step,” said Robinhood.

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