According to sources, Robinhood has filed confidentially for an initial public offering (IPO) on Tuesday. Later that same day, the company confirmed the news in a blog post. Robinhood has decided to list on the NASDAQ exchange and Goldman Sachs is advising the company for its market debut. Experts believe that this listing will be one of the largest and most controversial on the U.S. market this year.
Confidential submissions allow companies to submit materials for the SEC’s review before filing a public prospectus, so Robinhood does not have to make its financial details public until 15 days before the actual offering. The company’s listing is expected in the next few months.
The commission-free trading app was valued at around $12 billion in its latest financing round, which took place in 2020, prior to the GameStop fiasco.
What is Robinhood?
Robinhood is a financial services company headquartered in Menlo Park, California, and is known for offering commission-free trades of stocks and exchange-traded funds via a mobile app. Users can also purchase Bitcoin, Ethereum, and several other digital currencies on the app.
Why is Robinhood controversial?
Robinhood has experienced some controversy this year caused by a surge in demand for commission-free trading as new retail investors piled into the stock market during the pandemic. A subreddit forum named ‘r/WallStreetBets’ also exploded in popularity earlier this year as investors used the platform to discuss which stocks to buy. The combination of both resulted in a trading frenzy where many companies that were previously struggling financially witnessed their stocks surge. During this time, Robinhood added 3 million users.
However, the trouble for Robinhood came when they restricted trading on GameStop and other heavily-shorted ‘meme stocks’ that Reddit users bought in mass numbers. The CEO of Robinhood, Vlad Tenev, was brought before lawmakers to testify on the event where regulators discussed if new laws should be brought in around trading.
The company also announced in a regulatory filing back in February that the SEC, state regulatory authorities, and the Financial Industry Regulatory Authority were investigating Robinhood over its options trading process. Robinhood said in the filing that it in talks with FINRA, Wall Street’s self-regulatory body, about a resolution that may include paying a fine. After the surge of trading in GameStop shares strained the company’s liquidity, Robinhood raised $3.4 billion in convertible debt from its existing investors.
The California-based company gained popularity among young investors by making stock purchasing easy. However, many believe the app’s bare-bones trading experience lacks quality investment content and research tools that new investors need to protect their savings. Robinhood has even been sued by the family of a young man who committed suicide after he believed he had a negative $730,165 cash balance on the stock trading app. The complaint filed by the family read:
“This case centers on Robinhood’s aggressive tactics and strategy to lure inexperienced and unsophisticated investors, including Alex, to take big risks with the lure of tantalizing profits.”
Will Robinhood’s IPO be a success?
The above case highlighted how dangerous zero-commission trading apps can be and how more regulation is needed to ensure the safety of vulnerable, new investors.
Even though the company’s reputation was severely damaged by the halting of stocks during the short-squeeze, demand for all things tech coupled with a surge in interest in the stock market and cryptocurrencies might just make this IPO a success. The concern for investors is that the app needs to make significant moves to ensure it is supporting its users by making trading safer which it may not be able to do in the short amount of time before its proposed market debut date.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Financial Writer at MyWallSt
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