Robinhood Shares Are Set to Begin Trading
Shares of investment app Robinhood begin trading on Thursday, after a much-anticipated initial public offering priced at $ 38 a share. It was at the lower end of the range set by bankers for the deal, adding additional intrigue to the company’s first day of trading. Despite this, Robinhood’s IPO raised $ 1.9 billion from investors, valuing the eight-year-old company at nearly $ 32 billion.
Is Robinhood really worth that much?
The numbers only tell part of the story. Robinhood has 22.5 million accounts, but they are much smaller, on average $ 4,500, than that of rival Charles Schwab, with an average balance of $ 200,000. What is not factored into these numbers is that Robinhood clients are on average 31 years old, much younger than the typical clientele of competing brokers. If Robinhood can retain its young customers until retirement, or better yet convert them to credit card or bank customers, as Robinhood says, those accounts could be worth a lot more over time.
“Robinhood has something that no one else has: 22.5 million young people,” said Thomas Peterffy, who founded Interactive Brokers in the 1970s. “It’s huge.”
But institutional investors are wary, and many have refrained from the IPO. , because it does not charge any commission, attracts inexperienced traders and, according to some, encourages them to take huge risks in the market.
“There are a lot of red flags,” said David Erickson, who led equity underwriting at Barclays and now teaches at Wharton. “It’s as far from a ‘must-own’ for most large institutional investors as it gets.”
But keeping Wall Street in awe is part of Robinhood’s story. The app is a disruptor that is committed to democratizing finance. As part of its IPO, Robinhood sold up to a third of the shares directly to its clients through its app, disrupting the traditional process. Whether these investors keep, buy more, or quickly abandon the stock is the biggest question when opening trading.
Hordes of retail investors have banded together on Robinhood to stoke the meme stock frenzy, turning the app into the stock market equivalent of David’s Slingshot. Many of those same investors who have crammed into GameStop, AMC and others will ultimately decide whether Robinhood’s own actions will strike another perceived blow for the proverbial little guy.
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