Robinhood Humbled on Nasdaq Debut

July 30, 2021 15:30

Thursday saw Robinhood’s long awaited stock market debut on the Nasdaq Stock Market. But it did not go quite according to plan.

At around 12:30 EDT (17:30 BST), shares began trading at $38, the lower end of its $38 - $42 range. By 12:35, the share price had fallen 9%.

The share price did recover after its immediate drop, but by the time the closing bell rang at 16:00, Robinhood shares had fallen more than 8%. Its closing price of $34.82 giving Robinhood a market capitalisation of $29 billion.

Despite its disappointing first day, Robinhood shares were one of the most traded stocks in the US on Thursday, with more than 100 million shares bought and sold. The company itself reportedly sold 52.4 million shares, raising almost $2 billion in the process.

Source: Admirals MetaTrader 5 – Robinhood M1 Chart. Date Depicted: 29 July 2021. Date Captured: 30 July 2021. Past performance is not a reliable indicator of future results.

Robinhood, whose business seeks to “democratise investing” through removing account minimums and brokers' commissions, has surged in popularity since the beginning of the pandemic, with many younger traders signing up to the broker.

Unlike some of the other recent tech IPOs, Robinhood enjoyed a profitable year in 2020, with net income of $7.45 million and a net revenue of $959 million.

However, despite these positive factors, many investors remained wary of the company’s shares amidst concerns of its $31.8 billion valuation and ongoing issues with US regulators.

Last month, the Financial Industry Regulatory Authority fined Robinhood $70m for issuing “false and misleading” communications to their customers. They were also fined $65m by the Securities and Exchange Committee (SEC) in 2020 for misleading customers.

Furthermore, the company’s main source of revenue comes from the controversial practice of payment for order flow, which is essentially selling its customers’ trades to market makers. There are concerns that this practice will be targeted by regulators after SEC Chair Gary Gensler voiced criticisms of it.

Questions also persist as to whether Robinhood can maintain its high levels of growth in a post-pandemic world. Much of its recent success can be attributed to the fact that Covid-19 induced lockdowns has kept many of us at home, looking for new ways to pass the time. Once the world opens back up, will its target audience of young people maintain its interest in the world of investing?

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