Robinhood debuts on Wall Street

by Jonathan Adams

It was priced at $38 a share, the low end of its expected range of $38 to $42, indicating tepid investor interest

Robinhood is to sell its own stock Thursday on Wall Street – the very place the online brokerage has rattled with its stated goal of democratizing finance.

Through its app, Robinhood has introduced millions to investing and reshaped the brokerage industry.

Robinhood Markets and three of its executives are selling up to 60.5 million shares of its stock in an initial public offering (IPO), with trading expected to begin on the Nasdaq under the ticker symbol “HOOD.”

It was priced late Wednesday at $38 a share, the low end of its expected range of $38 to $42, indicating tepid investor interest. Still, it’s a huge moment for the company which is reserving many of the shares for its own customers, rather than just big professional investors.

Robinhood’s revenue surged 245% last year to $959 million. It then hit $522 million in the first three months of 2021 alone, more than quadrupling from the year-ago level.

One reason why Robinhood is so popular is that it doesn’t charge trading commissions or require customers to carry big balances. It makes the bulk of its money (81% of revenue in the first quarter) by funnelling investors’ orders to big trading firms, such as Citadel Securities, which take the other side of the trade. They also give a payment to Robinhood.

The practice, called “payment for order flow,” has drawn criticism from lawmakers and regulators. The head of the Securities and Exchange Commission has questioned whether it prevents investors from getting the best price possible for their trades and whether it impels brokerages to encourage customers to trade more frequently than they should.

But legal experts say tighter regulation may be difficult to bring about. Brokerages need to make money somehow, and if Robinhood can’t get it from payment for order flow, it could go back to charging trading commissions, said Joshua Mitts, a law professor at Columbia University That could make politicians even less popular than they already are.

I think investors in many ways are pricing that in, Mitts said, and there’s a pretty good sense that Robinhood is going to be OK.

This article is for information purposes only.
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