Robinhood IPO: The trading app is going public but don’t get too excited

Every Robinhood user when the app goes down — Robinhood IPO.

On July 1, Robinhood, the popular trading app, filed for its highly anticipated IPO and released its financial details — the day after being fined a record $70m for its system-wide outages and misleading customers

Robinhood IPO: Can any company be more controversial?

From racking up millions in fines and angering a community of over 10m on WSB, Robinhood can’t seem to stay out of trouble — or keep its app working during peak usage. But this is normal business these days for Robinhood — and the cost of achieving enormous growth:

• Incredible sales growth: $985.8m in 2020 — up 255% from 2019.
• Improving net income: $7.4m in 2020 — up from a loss of $106m in 2019.

At this rate, Robinhood could double sales again in 2021.  The real question is: Will this last after COVID? Upon going public, its valuation could be over $40b — not cheap compared to other public trading platforms and the risks that come with it…

Risks: Dogecoin, lawsuits and more…

Robinhood is warning investors of one big risk: Dogecoin — which made up a third of its crypto sales in Q1 2021.  With the Dogecoin hype fading, this risk shouldn’t be taken lightly. Other risks include:

• Exposure to crypto — Which grew to 17% of Robinhood’s sales in the first 3 months of 2021 — up from 3% in Q1 2020.
• Regulations — HOOD has 50+ class-action lawsuits and is being investigated by 7 US state/federal organizations so expect more fines.

Regulators are also scrutinizing Robinhood’s business model — which provides commission “free” trading through a process known as “payment for order flow“. According to regulators, this model may not get investors the best prices for their trades.

PFOF is banned in the UK and Canada. If this was to be regulated in the US, Robinhood’s profitability could be impacted.

Investors: An ominous sign for the Robinhood IPO

Trading platforms are cashing in on the retail investing hype — good for existing investors, but not so much for new investors. So far, returns haven’t been great:

• eToro is going public via SPAC, FinTech Acquisition Corp. V (NASDAQ:FTCV) is up 16% since the merger announcement.
• Coinbase (NASDAQ:COIN) is down 30% since going public in April.

These IPOs signal a potential market top for retail investing — which has steadily fallen since September.

What else? Robinhood plans to reserve 20-35% of its IPO shares for retail investors — which could translate to a lot of angry people if the shares tank the first day of trading…