After filing for its IPO on 23 March, next week on 29 July looks set to see this much anticipated IPO start trading, with the company set to raise $2bn by selling up to 55m shares at a price between $38 and $42 a share.
This would give the company a valuation of up to $40bn, joining the ranks of Coinbase (NASDAQ:COIN), whose own listing generated a great deal of early interest, before its shares slipped sharply, along with the fortunes of bitcoin. Robinhood has said it intends to reserve up to 35% of its Class A shares to its customers who have driven a lot of the growth in the business over the last 12 months. Promoted to level up access to financial markets, the app has spawned a renaissance of interest in the stock market among a younger cohort of traders determined to take on the Wall Street giants, with varying degrees of success.
Robinhood’s monthly active users have more than doubled in the past 12 months, rising to 17.7m during Q1 of this year, and up to 22.5m towards the end of Q2, while revenues have risen from $277.5m back in 2019 to just below $1bn in 2020. The company expects to see revenues well in excess of 2020 this year, after seeing Q1 revenues of over $500m, although it still posted a loss of $1.4bn in the first three months of this year, largely because of the new debt raised in February.
Nearly 18m people use the Robinhood app with $81bn in assets under management. This success has presented the up-and-coming fintech company with its own set of problems, including trading outages or suspensions, as their IT infrastructure struggled to cope with the huge volumes being pushed through. As a result the company was forced to raise $3.4bn in February from its backers, Ribbit Capital and Sequoia Capital among others, in order to ensure the business met deposit thresholds required by the various clearing houses that handle the trading orders on its platform.
The big surge in orders in the early part of the year overwhelmed the company, due to the higher levels of capital needed to cover their exposure in the various stocks that were being traded, with over 600,000 downloads of its app in one day at the end of January. This led to several lawsuits being brought which could result in fines in the weeks and months ahead.
The company has already said it expects to pay a $30m fine in respect of an anti-money laundering probe of its crypto business and has also cited regulation as a possible headwind. This is on top of a $70m fine from FINRA violations dating back to 2016, and a $65m settlement with the SEC, at the end of last year.
Product innovation is all well and good but leveraged investing along with fractional exposure to various asset classes creates challenges all of its own when it comes to managing risk properly and sensibly, and all too often novice traders aren’t aware enough of the enormous risks they are taking by trading on leverage.
The rewards are big, but the risks can be even bigger.
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