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Robin Hood IPO Just around the corner.

This is everything you need to know.

Robinhood Initial Public Offering: A Quick Fact

  • Code: hood
  • Sale date (date of first transaction): According to Renaissance Capital, on or around Thursday, July 29, 2021
  • Listing method: traditional IPO
  • Exchange: Nasdaq Global Select Market
  • Offer price: Estimated stock price is between US$38 and US$42
  • Issued shares: about 55 million shares
  • Prospectus link

What Robinhood offers

Robinhood is the center of this year’s meme stock trading boom. This commission-free trading application has secretly submitted its highly anticipated IPO documents to the US Securities and Exchange Commission (SEC) in March this year.

The company later disclosed the document on Thursday, July 1.

According to its revised S-1 file submitted to the US Securities and Exchange Commission, Robinhood will issue approximately 55 million Class A shares on the Nasdaq at a price of US$38 to US$42, with the stock code “HOOD”. If they sell the stock at the highest price, the company can raise nearly $2.2 billion.

Existing shareholders, including its CEO and founder, will reissue 2.625 million shares in the IPO, including 703.87 million Class A shares.

Robinhood’s target valuation is as high as 35 billion U.S. dollars. This will make the valuation of free trading applications higher than the financial services giant State Street (STT) Or Nasdaq (NDAQ) Stock trading.

Robinhood also stated in the document that it plans to reserve 20% to 35% of IPO shares for its users based on the needs of users and other investors.

There are 17 banks overseeing the issuance, but the main underwriters are JP Morgan Chase and Goldman Sachs.

According to its prospectus, underwriters can choose to purchase up to 5.5 million shares to make up for any over-allotment.

Robinhood expects to use the proceeds of the IPO for general corporate purposes and to repay debt.

About Robin Hood

Robinhood was founded in 2013 by two former Stanford University roommates: Vlad Tenev, 34, and Baiju Bhatt, 36.

Tenev is now the company’s CEO, and Bhatt is the chief creative officer. They named the company after a legendary gangster in British folklore.

The two have long claimed that they were inspired by the Occupy Wall Street movement in 2011 and set out to “democratize finance” by making it easy for millennials to trade stocks through apps.

Robinhood bills itself as a pioneer of “free trading”. When brokers offer free transactions, it just means that they will not charge their own fees for helping users execute transactions.

However, it is important to point out that even if you do not pay commissions for buying and selling stocks, other costs may be involved.

Robinhood also offers a premium subscription service called Robinhood Gold. It also ventured into other areas, such as checking accounts and cryptocurrencies.

According to PitchBook, Robinhood’s largest shareholders include DST Global, Index Ventures, New Enterprise Associates, and Ribbit Capital.

Aimed at destroying

When Robinhood first launched its app in 2013, it provided users with the ability to trade ETFs and stocks without paying commissions, which caused a sensation.

The Menlo Park, California-based company ultimately took the lead, while other traditional brokers such as Charles Schwab and TD Ameritrade had no choice but to follow suit.

Since its launch, Robinhood has quickly attracted millions of young traders into the stock market with its zero commission and minimum account sales promotion.

The application is not only easy to use, but also has an attractive interface. But this has drawn criticism from people who compare it to mobile games or social media apps.

Some critics say that Robinhood encourages users to trade more often than they should because it adds game-like features to the app.

Studies have shown that over-trading tends to bring worse results to stock traders.

Take a quick look at Robinhood’s financial situation

According to Robinhood’s IPO documents submitted to the US Securities and Exchange Commission, the company currently has 18 billion asset custody and a total of 17.7 million monthly active users.

In addition, approximately 18 million people use its trading app to buy and sell cryptocurrencies and stocks.

In the first quarter of 2021, the company’s revenue was 420 million U.S. dollars, compared with 96 million U.S. dollars in the same period last year.

The net loss in the same period was US$1.4 billion, while the net loss in the same period last year was US$53 million. Robinhood attributed its huge net loss to the $3.5 billion in debt it raised in February.

In the year ended December 31, 2020, the company reported a profit of $7 million and achieved profits in two of the past nine quarters.

How does the company make money

Most of Robinhood’s revenue comes from order flow, that is, routing transactions to high-speed trading companies, such as Virtu or Citadel Securities.

These companies then pay a small transaction fee to the broker, which can add up to millions of dollars when users are actively trading.

According to JMP Securities’ analysis of company documents, Robinhood and competitors including E*Trade, Charles Schwab and TD Ameritrade received approximately $2.6 billion in stock and option order payments.

The growth of Robinhood: a quick look

Robinhood mentioned the word “growth” more than 200 times in documents submitted to the US Securities and Exchange Commission. As we mentioned earlier, the company had approximately 18 million users in the January-March quarter, an increase of 107% over the same period last year.

According to Matthew Kennedy, senior strategist at Renaissance Capital, first-time investors may stick to Robinhood for a long time.

“The most outstanding thing for me is their growth and the fact that customers are first-time investors,” He told MarketWatch.

Robinhood and GameStop legend

Although Robinhood has developed into one of the most valuable private companies in Silicon Valley, the app has also experienced many challenges, especially in 2021.

At the beginning of this year, Robinhood has been forced to raise a liquidity crisis of US$3.4 billion due to the “memetic stock” trading frenzy that caused many retail traders to flood into GameStop.Genetically modified organisms) And other stocks with high short interest.

Therefore, the company temporarily restricted users from selling certain stocks of emoticons, and this decision triggered strong opposition from its users and some legislators on Capitol Hill.

Robinhood users accused the company of standing with Wall Street elites at the expense of temporary traders.

Some users also joined a class action lawsuit against the company, claiming that it manipulated the stock market by restricting certain traders, causing them to suffer losses.

In December 2020, Robinhood was also fined $65 million. The company paid the fine to the US Securities and Exchange Commission for misleading users on how it generates revenue.

SEC officials said that between 2015 and 2018, the broker did not fully disclose the cost of sending order streams to market makers, or executing customer orders at a lower price than rival brokers.

Bottom line

Despite considerable controversy, Robinhood is clearly a great company.

It is one of the most popular applications that have appeared in recent years. It attempts to reshape the world of stock trading that was not risky before in the era of smartphones.

Its commitment to zero-commission stock trading has helped the company expand its user base and valuation.

As Robinhood prepares to enter the public market after months of teasing investors, it looks ready to grow with the brokerage industry.

However, it is recommended that most traders proceed cautiously, observe the company’s performance, and if interested, wait for a more attractive entry point.

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