Robinhood misses the mark

Robinhood misses the mark

Robinhood, with the stated aim of democratising investing, and a gateway to many meme stocks, isn’t quite feeling merry. on July 29, it made its debut on the Nasdaq after a successful $2.1 billion IPO only to end up making history for all the wrong reasons. it closed the day’s trading 8.4% below the IPO price of $38 — the worst debut on record among 51 U.S. firms that raised that much money or more.

what went wrong?

it might be a bit overly critical to put it that way, since Robinhood did manage to earn a near-$32 billion valuation with its IPO. however, the IPO was subscribed at the lower end of its $38-42 price range. this shows many investors felt the valuation was too high.

there are also concerns over potential regulatory action on the company, as it faces an inquiry from the US SEC. in June, it was fined $70 million for “systemic” failures by Finra, the securities industry’s self-regulator.

the internet remembers

retail investors by and large stayed away from the stock. remember the whole GameStop saga from early this year, when a community of Redditors squeezed Wall Street hedge funds? Robinhood had gotten involved by temporarily suspending trade in the stock on its platform. the Redditors clearly haven’t forgotten.

light at the end of the tunnel

the stock recovered by nearly 1% on the second day of trading, as many investors acknowledged its potential. Robinhood has grown tremendously over the past year. its users have grown from 7.2 million in March 2020 to over 18 million now, with nearly 10 million of them signing up in the first half of 2020 alone. the assets under its management have grown from $19.2 billion to $80 billion. this includes a sizeable holding in cryptocurrencies, which may pay off well in the long term. 

also, more than 300,000 of Robinhood’s own customers bought into its IPO. that’s certainly a show of faith.

the debut-day failure of a highly anticipated entrant to the stock market has raised a few concerns that the sheen might be wearing off IPOs. but given the reasons above, there are many who feel this was just a one-off blip. after all, language-learning app Duolingo debuted on the Nasdaq just one day prior, and closed the day’s trading 36% higher than its IPO price.