Financial Associated Press (Shenzhen, reporter Cheng Mengqi) news, as the most concerned new listed technology company this year, Robinhood's IPO is also as controversial and volatile as the company itself, closing at $34.82 on the first day of listing, down 8.37%, corresponding to a market value of $29 billion.
On Thursday afternoon, EST, robinhood landed on the NASDAQ with the lower limit of the offer price range, the stock code is HOOD, opening at $38, corresponding to a market value of about $32 billion, and then quickly fell more than 10%. At the end of the session, the stock price climbed to close to the IPO price, and finally ended in a break.
The world's largest retail trading platform lost $3 billion in market capitalization on its first day of listing, a scenario that Robinhood and its underwriters have tried to avoid, placing offering prices at the low end of the target range in hopes of ensuring good first-day trading. Some analysts believe that the stock is still broken because nearly a quarter of Robinhood's shares are distributed to retail investors on its platform, while allowing internal employees to sell up to 15% of their positions immediately after listing, and there are also concerns about valuations and the company's business prospects.
What does Robin Hood for pocket money make?
With 18 million users, 17.7 million monthly active users, $81 billion in custodial assets, Robinhood makes up more than 50% of its total users for the first time. It pioneered a commission-free trading system, once known as the "Robin Hood of the Rich and the Poor," a practice that led peer competitors, including established brokerages Fidelity, Charles Schwab and E-Trade, to be forced to cut commissions to zero on about $5 per trade in 2019. But with commission-free, how did Robinhood make the profits on the prospectus?
According to the prospectus, as of the end of March 2021, the number of users who opened fund accounts in the Robinhood stock trading app was 18 million, more than double that of the same period last year; revenue in the first quarter of 2021 more than tripled to $522 million; the average daily trading volume of cryptocurrencies on Robinhood increased by 14 times, and the net value of cryptocurrencies held by Robinhood user accounts rose from $481 million to $11.6 billion. In recent years, Robinhood has also been profitable, with total revenues of $278 million and $959 million in 2019 and 2020, respectively; Profit was -$107 million and $7.45 million, respectively.
The prospectus also shows that Robinhood's operating performance depends on the level of trading activity and net deposits on the platform, with revenue from PPFOS (also known as "sale order flow") and transaction rebates accounting for 75% of total revenue in 2020, and this part of revenue increased to 81% in the first quarter of 2021.
One can't help but wonder, what kind of trading model is the sale order flow?
Usually, there is a small gap between the bids of buyers and sellers in the financial markets, and market makers can earn this part of the spread in the process of executing the trade. PFOF means that Robinhood sells orders from retail investors to market makers, and the market maker takes a part of the rebate from its spread profit to Robin Hood, which is colloquially a rebate, which is Robin Hood's return to the market maker's "drainage".
Robinhood introduced Internet thinking into the financial field, greatly reducing transaction costs and encouraging users who would not otherwise buy stocks to buy stocks. Much of its revenue is tied to trading volume, which means that the more users trade, the more the company earns. This move also runs counter to the situation in which ordinary people profit from long-term investment, resulting in a conflict of interest between the platform and users.
"Robbing the rich to help the poor" or "robbing the poor to help the rich"? Robinhood is controversial
How can the story of Robin Hood's development lack drama and controversy?
In February, Buffett's old partner, Munger, warned that commission-free trading apps like Robinhood were part of the cause of the asset bubble, causing a "regrettable" impact. In the face of the criticism, Robinhood chose to respond positively, bluntly saying that Munger's views were outdated and too elitist.
At the beginning of this year, the war between retail investors and Wall Street attracted the world's attention. In that unprecedented "battle", Robinhood supported a large number of retail transactions, and when the retail investors won a big victory, the major brokers represented by Robinhood directly suspended trading, causing GameStop to dive in a straight line.
Last May, Alexander Kearns, a 20-year-old American college student, committed suicide because he didn't know anything about options and thought he had lost more than $700,000 and couldn't afford it. In fact, this was due to complex options trading, which led to a temporary negative cash count, and he still had $16,000 in his account at the time. Robinhood has also been questioned, because of its extremely simple registration experience and operation experience, inexperienced investors only need a few minutes to open an account and be ready to trade, as long as the system asks you that you have a little experience, it will immediately ask you if you want to enable options trading, and commission-free. After the incident, Robinhood quickly installed bulletproof glass on the silicon valley headquarters gate.
In March last year, affected by the new crown epidemic and other factors, the US stock market fluctuated sharply for several consecutive days, but Robinhood went down for two consecutive trading days, resulting in millions of users being unable to trade, and the indirect losses to investors were incalculable.
In the face of growing controversy, many ordinary users are gradually realizing that they are not Robinhood's customers, but products. And Robinhood, which once promoted "robbing the rich and helping the poor", faced with the lawsuits and supervision of the US government, while occupying the moral high ground of helping the poor get rich, while selling the poor order flow, the first day of the listing may be a response to the controversy in recent years, but how far it can go in the future, it seems that there is no answer.
The worst performer in ipos of the same scale, "robbing the rich and helping the poor" caused controversy
Robinhood's price fell 8.37 percent on the first trading day after its listing, and according to Bloomberg, it was the worst performer of the 51 U.S. companies raising the same or higher IPO, before it had the worst-performing record by another brokerage, MF Global Holdings Ltd., a 2007 IPO that held for nearly 14 years before being broken by Robin Hood.
Zhang Junhui, CEO of Jiujiu Group, who has participated in Robinhood financing, said in an interview with the Financial Associated Press: "Founder Baiju had a conversation when he registered the company in November 2013, when Robinhood was just an idea, I have been working in the securities industry for a long time, I think his idea is very good. After its establishment, due to the slow development of the business model Robinhood, the company was still very small during the B round, and I had a natural liking for securities companies and an understanding of the industry, so I participated in its B round of equity financing in 2015. Robinhood's Series B is not involved in financial institutions, and investors are individuals, angel funds and small and medium-sized private equity investors, and participants believe that Robinhood's business model can break the market pattern of individual investors buying and selling securities in the United States. “
Mr. Zhang Junhui also said that he is always optimistic about the development prospects of the financial technology industry, "Robinhood occupies a larger seat among retail investors in the United States, and robinhood's user base is younger than other Chinese-funded Hong Kong and U.S. stock trading platforms, especially millennial investors aged 18-35." And its operation interface is particularly simple and easy to understand, and the operation method is simple and direct. At the same time, Robinhood also provides free real-time quotes on the basis of commission-free, helping users to understand market dynamics instantly and reduce investment risks. ”
Robinhood's final round of funding in 2020 was valued at $11 billion, and its valuation climbed nearly 3 times in a year based on the listing price. Underpinning its rapidly growing valuations are the number of retail users, along with the expansion of cryptocurrency transactions, both of which face very high risks.
Coupled with Robinhood's feud with retail investors, before the listing, retail investors on Reddit called for a boycott of Robinhood, and even formed a short-selling group of Robinhood, clamoring to make Robinhood's stock into single digits. In their eyes, Robinhood is not rob rob the rich and help the poor Robin Hood, but the capital "running dog" who "robs the poor and the rich".
Under the influence of multiple factors, most of the institutional investors chose to stay still this time, leaving Robinhood to survive between institutions and retail investors.
The story of large technology companies going public to make a fortune is staged every year, and there is only one Robinhood who "robbed the rich to help the poor" but was killed by retail investors. In this story of ups and downs, success and retail investors also lose, in a sense, retail investors are the protagonists on this stage, and the capital behind the profit, did not look away from this stage even a minute and a second, after the first day of the break, but also waiting for the good drama to start anytime and anywhere.