Robinhood IPO details
Robinhood Markets Inc. is an online Mediation Companies with a stock trading and investing app for the younger generation Retail investors. The company, an early adopter of zero commission trades, has filed a confidential application Initial Public Offering (IPO) on March 23, 2021.
A confidential IPO allows a company to get an initial draft of its S-1 to the Securities and Exchange Commissionwhich only needs to be published 15 days before a promotion Roadshow or, if there is no roadshow, 15 days before the IPO. The benefit of confidential filing is that the company has more control over the IPO date and can make changes to its IPO filing without having to manage public relations.
This means that Robinhood has not released the expected date, price range, number of shares, and overall rating of its initial public offering. However, the other financial information can help us understand the context while we wait.
The Robinhood app of the same name allows users to trade over 5,000 stocks and seven Cryptocurrencies on his platform. In addition, they can be exchanged American Depository Receipts (ADRs) for 650 globally listed companies and Options Contracts for stocks listed on US stock exchanges and Exchange Traded Funds (ETFs).
The central theses
- Robinhood is a California-based fintech company with a stock trading and investment app aimed at younger retail investors.
- It applied for a confidential IPO in March 2021. Robinhood has not yet made the details of the offering public.
- Robinhood has raised a total of $ 5.6 billion from private investors and was reportedly valued at $ 40 billion in its final funding round in February 2021.
- Robinhood was charged by the SEC in December 2020 for delivering sub-par trade execution to its clients.
- Robinhood was in the news extensively in 2021 due to its popularity with traders involved in the GameStop Short Squeeze.
Robinhood Foundation and History
Robinhood was founded in 2013 by Stanford alumni Vlad Tenev and Baiju Bhatt. The duo had Wall Street experience prior to founding Robinhood, having previously founded Celeris, a trading technology company, and Chronos Research, which sold fintech software to investment banks.
The Robinhood app launched as a stock tracking app in April 2013 to create a Yahoo Finance equivalent for mobile devices. Yahoo and Google Finance went mobile, ousting Robinhood from that space. As a result, Robinhood raised $ 16 million from well-known venture capitalists, including Andreessen Horowitz and Ribbit Capital, and became a brokerage firm.
Robinhood as we know it today was officially launched on Apple’s App Store in December 2014. Since then, it has grown in popularity and has more than 13 million users on its platform.
Robinhood was with the in 2021 due to its popularity Retail investors who did that Short press on Gamestop. However, increased trading activity on its platform resulted in increased demand for Span and the app stopped trading for Gamestops stocks on its platform. The company was also forced to raise additional capital from investors to meet its capital needs.
This incident brought Robinhood under criticism and regulatory scrutiny and its chief executive officer and co-founder, Vlad Tenev had to testify before Congress Robinhood’s role in the controversy.
How does Robinhood make money?
Robinhood is a Commission-free brokerage, which means users didn’t have to pay any fees to trade stocks on their platform. This was the traditional way brokers made money, without it having to be find other ways to generate income.
Payment for order flow (PFOF)
Robinhood’s greatest source of income comes from a practice called Payment for order flow (PFOF). Order flow payment refers to money brokers receive to direct their clients’ deals to specific ones Market leader. Market makers are companies that bring together buyers and sellers of stocks or other securities. They make money by pocketing the difference between how much the buyer of a stock pays for the stock and the price the seller sells it for. To make sure there are always buyers and sellers to match, they pay brokers like Robinhood to send orders to them.
Robinhood has not yet released full financial data, but does disclose its PFOF earnings. For the first and second quarters of 2020, the company had sales of $ 91 million and $ 180 million from PFOF. In its most recent filing, Robinhood said those numbers rose to $ 331 million in the first quarter of 2021. Order flow from options trading accounted for $ 198 million of the total, while stock trading accounted for $ 133 million.
Brokers are committed to the best execution of trades for their clients, which primarily means trying to get the best price on trades asap. PFOF has the potential for a conflict of interest as a broker may be paid more to send orders to a market maker who offers their clients lower prices. Robinhood says it still provides the best execution for its clients and writes on its website that Market Maker payments “are not considered when your brokerage orders are routed”.
However, in December 2020, the SEC found that “Robinhood falsely claimed in a website FAQ between October 2018 and June 2019 that its execution quality matched or exceeded that of its competitors. [SEC’s] Okay states that Robinhood provided inferior trading prices “. The SEC said this practice cost its customers $ 34.1 million, even when factoring in the savings customers get from not having to pay commissions. Robinhood, while neither admitting nor denying the SEC filings, agreed to pay $ 65 million to settle the charges.
The current SEC chairman Gary Gensler has said that there is a “minor conflict of interest” with payments from order flow practice and his agency is looking into this.
Membership fees: Robinhood Gold
In addition to PFOF, Robinhood also earns money with membership fees. Robinhood offers two membership levels – Basic and Gold. The former is free and the latter costs $ 5 per month. While both membership types allow commission-free trading, the gold membership also offers access to reports from investment research companies Morning star Research reports and the ability to trade on the edge. However, Robinhood does not disclose how many of its users have Gold Accounts and how many Basic accounts.
Robinhood also earns additional income from interest charged on accounts when trading margin, and from interest it receives from uninvested money users have.
How Much is Robinhood Worth?
Robinhood has raised a total of $ 5.6 billion from investors in 24 funding rounds, according to the online public database Crunchbase. The final round on February 1, 2021 raised $ 2.4 billion. Robinhood was raised $ 40 billion in its February funding round. Major donors include Kleiner Perkins, Andreessen Horowitz and Google Ventures.