Why we’re talking about . . .

Robinhood’s market debut: an ‘unconventional listing’

The disruptive app has hit the public markets it seeks to democratise. It could be a wild ride…

Robinhood marched its merry men to Wall Street last week in one of Nasdaq’s biggest IPOs in years, valuing the disruptive online brokerage at $32bn, said James Phillipps on Citywire. It was a fittingly “unconventional listing”: the company offered a third of its shares to its own customers. Hundreds of thousands signed up, only to see it flop. Shares fell by over 8% on the first day – a “limp opening” in “stark contrast” with Robinhood’s “stratospheric growth since the start of the pandemic”, during which it has “won over an army of fans, particularly among younger investors”, doubling its customer base to 31 million. Shares in the outfit, which offers equity, cryptocurrency and options trading as well as cash management, have since bounced back well above the $38 float price, said Maggie Fitzgerald on CNBC.com. They surged by more than 24% on Tuesday confirming, belatedly, the market’s faith in Robinhood’s mission “to democratise” finance. 

The company, founded by Vlad Tenev and Baiju Bhatt in 2013, has “revitalised” a type of day trading last seen in the dotcom bubble at the turn of the century, said the FT. Robinhood’s pitch to investors – that everyone, not just the giants of Wall Street, should have access to the US stock market – has “become marketing folklore”. Investors on its app have sent stocks like Tesla, and cryptocurrencies such as dogecoin, to all-time highs – and brought discussion about financial markets “back to dinner tables across the US”. But its progress has also been “pockmarked by crisis and scandal”. Robinhood’s role in the January trading frenzy around the “meme stock” GameStop has come under congressional scrutiny. And it has faced fines and regulatory investigations for everything from lousy customer support to designing game-like features that inspire customers to compulsively check the app. “It’s easy to make positive speeches about democratising finance when everything is going up,” observes economist Patrick Krizan of Allianz. “It will be more interesting to see how people behave when we democratise the downturn.”

Perhaps Robinhood’s greatest contribution has been the “laudable” way it pioneered lower costs for investors, said The Economist. “For a time, the big retail brokers ignored the plucky upstart”, but after “a quick, brutal price war”, they all surrendered. There are plenty of caveats, said Matt Schifrin and Antoine Gara in Forbes. But “Robinhood’s long-term success and legacy” will depend on whether the good it is achieving – disrupting Wall Street and introducing millions of newcomers to investing – “outweighs the negative effects and risks”. The jury’s still out.

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