Robinhood's Disappointing IPO Debut

August 2, 2021

The Daily Stack is a daily private market insights newsletter by PrivCo, a private company intelligence platform. Read our previous insights.
Have an interesting topic you want us to include, let us know!

Robinhood's public coming out was meant to be a full-circle moment for the free-trading app seeking to democratize investment trading. As we saw in its Thursday IPO, however, the company had the worst debut of an IPO of its size, with an 8.4% decrease on its first day. Still, the company raised $2.1BN and created a flurry of interest, from seasoned investors to amateur meme-stock enthusiasts. For comparison, Uber Technologies had a 7.6% decrease on its first day of trading back in May 2019. Since then, Uber's stock has fluctuated from a low of $21.33 to a high of $60.63 before settling today at $44.04, a slight uptick from its starting price of $41.57.

What they do, they do well.

The company's popularity is due in large part to its free access for investors, enabling ease of adoption for new users. Robinhood's revenue comes from payment for order flow, which funnels investors' money into big trading firms and returns payments back to the business. Already in 2021, the company has nearly quadrupled its revenue from the same period last year and attracted a solid 22.5MM investors.

Not everyone is a fan

Some regulators have criticized the system of payment for order flow but forcing a switch to a commission-based model is reportedly difficult to enact. The stakes of regulation are high for the business, with 81% of revenue derived via payment for order flow. Last week, ahead of the IPO, the Fed seized the phone of Robinhood's CEO, Vlad Tenev, in connection with the ongoing investigation into the company's handling of meme-stock trading earlier this year, when the app temporarily shut down trading of several stocks (including Gamestop, AMC, and others), a move considered a violation of investor ability to participate in a free market and to make a profit. Congresswoman AOC and other legislators sided with these investors and called for an inquiry. This latest inquiry comes after the company was fined a staggering $70 million for "systemic" failures as well as questions around whether the CEO is properly registered with FINRA as an investment trader.

Retail Investors' Final Word

Speculation about regulation may ultimately pale in comparison to the opinion spread among the app's millions of retail traders, many of them teenagers, comparing notes on Reddit. NPR reported that many of these users are on the fence about the stock, while some are enthusiastic about the democratizing principles the company espouses, and yet others are convinced that like many popular trends in youth culture, the hype may already have passed.