Reuters, 1 July – In a filing on Thursday, Robinhood Markets Inc set the setting for its highly anticipated IPO by revealing fast increase in users of its trading app, as well as a slew of probes by prosecutors and regulators. According to Reuters, the company is aiming for an IPO valuation of over $40 billion, after last year’s selling frenzy for so-called meme stocks like GameStop (GME.N). For the first time, Robinhood’s IPO filing outlined how the trading craze that has swept novice investors generated a four-fold increase in income from January to March, as well as how its rapid growth came at a cost. After borrowing $3.5 billion in convertible bonds to support the flow of trading orders amid the rally in a few companies that had been shorted by hedge funds and championed by individual investors in internet chatrooms like Reddit’s WallStreetBets, it recorded a net loss of $1.4 billion for the time. Many of its users and US lawmakers were enraged by its handling of the meme stock frenzy, which was hampered by faults and followed by trading restrictions. Legal authorities and regulators who were already investigating Robinhood’s aggressive marketing to investors and how it benefits from trading orders further up their investigation. According to the IPO filing, a review by the US attorney’s office in California resulted in a search warrant for Robinhood co-founder and CEO Vlad Tenev’s cell phone. The US Attorney’s Office in Northern California declined to comment through a spokeswoman. The Menlo Park, California-based firm agreed to pay a $70 million fine as part of a deal with US banking regulators who accused it of failing to properly assess its clients and apply risk controls earlier this week. According to the petition, various government entities, including the US Justice Department and the US Securities and Exchange Commission, have issued subpoenas and requested information from Robinhood and CEO Tenev. This year, the family of a 20-year-old stock trader who committed suicide sued the firm, claiming that the app’s “misleading communications” drove their son to worry over what he mistook for massive market losses. find out more “Payment for order flow” accounts for the majority of Robinhood’s revenue. Market makers pay brokers a charge for routing trades to them in this practice. Critics claim that this creates a conflict of interest by incentivizing brokers to send orders to the highest bidder, which may not always be the best price for customers. Over it, regulators are probing Robinhood. Four market makers accounted for 59 percent of Robinhood’s revenue in the first quarter of this year. According to the corporation, revenue increased to $959 million last year. In 2020, Robinhood reported a net income of $7 million, compared to a loss of $107 million in 2019. As of March 31, 2021, the corporation had roughly $12 billion in bitcoin assets under custody, a 23-fold increase from the previous year. During the same time period, Robinhood’s platform saw over 9.5 million clients trade nearly $88 billion in cryptocurrencies. THE APP TO USE IF YOU’RE A YOUNG INVESTOR Robinhood’s trading app, which was founded in 2013 by Stanford University roommates Tenev and Baiju Bhatt, has made it easier for the general public to trade stocks and has energized a generation of retail traders. The platform’s user-friendly layout has made it a go-to for young investors stranded at home due to the pandemic, and its popularity has risen dramatically in the last 18 months. Robinhood has captivated the interest of Silicon Valley’s largest investors, who have invested billions of dollars into the company, making it arguably the breakout financial technology startup of its generation. By eliminating the role of financial counselors, it violates long-held investing principles. “Some experts dismiss individual stock ownership, arguing that people should instead invest in passively managed funds through a financial advisor. We reject this, and we believe it is critical to be able to own equity in the companies you care about without having to go via a middleman “According to Tenev and Bhatt’s IPO filing. Underwriters will reserve between 20% and 35% of its Class A shares for sale to consumers through Robinhood’s IPO Access tool, which it launched in May to allow retail investors to buy shares in initial public offerings. find out more Since its start, Ribbit Capital, ICONIQ, Andreessen Horowitz, Sequoia Capital, Index Ventures, and New Enterprise Associates have invested nearly $5.5 billion in Robinhood. According to those familiar with the situation, its value has roughly tripled in the last year, with a fundraising in February valuing the company at approximately $30 billion. The Nasdaq will float the online brokerage under the symbol “HOOD.” find out more The offering’s main underwriters are Goldman Sachs and J.P.Morgan. Anirban Sen and Noor Zainab Hussain in Bengaluru; Michelle Price and Chris Prentice in Washington, DC; Niket Nishant and Sohini Podder in Bengaluru; Sriraj Kalluvila, Greg Roumeliotis, and Himani Sarkar in Bengaluru; Sriraj Kalluvila, Greg Roumeliotis, and Himani Sarkar in Bengaluru; Sriraj Kalluvila, Greg Roumel The Thomson Reuters Trust Principles are our standards./n
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