Will Robinhood’s IPO Attract Investors?
AAfter filing on March 23, Robinhood’s IPO is expected to take place in July. After the trading app has drawn criticism from established players, what will investors do with Robinhood’s IPO when it hits the market?
Upcoming Robinhood IPO
It has been over 12 months now that the Robinhood trading app has become part of the mainstream narrative surrounding the resilience of the US stock markets.
Promoted as a means of improving access to financial markets, the app has sparked renewed interest in the stock market among a younger cohort of traders determined to take on the Wall Street giants, with varying degrees of success. .
The disruption caused by the app’s success has drawn huge criticism from more established players who argue that it makes trading too easy and turns the investment process into a much more speculative one. Will this reaction affect Robinhood’s IPO?
While this may be true to some extent, it also shows that the accessibility of the app helped undermine the business models of the biggest players in the industry who charged fees high enough for investors to trade in stocks and actions on their platforms.
Essentially, the success of Robinhood has forced the bigger brokers to improve their game as well as lower and / or lower their fees to compete.
Negative PR and blackouts hit Robinhood
Of course, the popularity and success of Robinhood presented the rising fintech company with its own set of issues, including interruptions or suspensions of transactions, as their IT infrastructure struggled to cope with the huge volumes transmitted. In turn, those blackouts sparked a significant amount of negative public relations, which ultimately culminated in a Congressional hearing into the events surrounding the outbreak and the suspension of GameStop shares earlier this year.
In the run-up to Robinhood’s IPO, this tech unicorn has managed to tap into a previously untapped user base of novice investors, who, during the lockdown, appear to have used their US stimulus payments to spark a rebound. of interest to the functioning of financial markets. .
The biggest challenge Robinhood faces as we come out on the other side of the pandemic will be keeping a lot of these new users on board without them blowing their accounts up. We got a sense of the scale of the challenge earlier this year in the wake of GameStop’s volatility, with tragic consequences.
This is where future regulations may well act as a headwind. Product innovation is great, but leveraged investing along with fractional exposure to various asset classes creates challenges when it comes to managing risk properly and wisely, and too often the challenges. Newbie traders are not sufficiently aware of the huge risks they take when trading on leverage. The rewards are indeed great but the risks can be even greater.
Robinhood’s IPO expected to cause a stir
That said, Robinhood’s upcoming IPO will likely be as big as Coinbase‘s direct listing earlier this year, which garnered a lot of interest in early sessions, then quickly took off, opening well above its benchmark price of $ 250 to $ 380, then slipping straight back down, subsequently hitting a record low just below $ 210, before rebounding modestly. Early indications suggest Robinhood could see a valuation of around $ 40 billion, given a recent fundraising of $ 3.4 billion in February this year.
The February funds were provided by Ribbit Capital and Sequoia Capital, among others, to ensure that Robinhood meets the deposit thresholds required by the various clearing houses that handle trading orders on its platform. This is a jump from September last year, when a fundraiser resulted in a valuation of $ 11 billion.
Time will tell if Robinhood is worth a valuation closer to $ 50 billion than to $ 5 billion, but if Coinbase’s experience is any guide, it would be wise to be cautious of what can only be described as dart game ratings.
“Memes stocks” could lead to stricter regulations
The sharp increase in orders at the start of the year overwhelmed the company, due to the higher capital levels needed to cover their exposure to the various stocks traded, with more than 600,000 downloads of its app in one day at the end of January.
The popularity of so-called memes stocks like GameStop, AMC Entertainment, Clover Health has been largely driven by the Robinhood platform, as have recent moves in cryptocurrencies, while the company also faces a number of lawsuits for trading failures that have occurred. in March of this year.
These lawsuits along with tighter regulations are likely to be major hurdles for the company to overcome as it prepares to go public, with a release date expected just after July 4.
The company must also address the stability issues that plagued it in the first half of this year.
At this time, we have no details on the valuation or price of Robinhood’s IPO, figures which are expected to be revealed in the coming weeks. In the meantime, it’s probably best to be careful when deciding to play in this particular sandbox.
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