Investors are anxiously awaiting today’s trading debut of Robinhood Markets (NASDAQ:HOOD), the online brokerage that priced its initial public offering at $38 a share. HOOD stock will trade on the Nasdaq following the Robinhood IPO.
The Robinhood IPO pricing reflects a $32 billion valuation. Investors should note that the pricing is at the bottom of a range of $38 to $42 a share the company and its underwriters had been targeting, according to reports. Some 55 million shares are expected to be sold. At the IPO price, Robinhood co-founders Baiju Bhatt and Vlad Tenev would own shares worth $3 billion and $2 billion, respectively.
Importantly, the brokerage platform has set aside up to 35% of the offering for its own customers. That is significantly more than typically available to retail customers in an IPO. The usual MO is that 10% of the offering is carved out for the little people while underwriting banks allocate the vast majority to their deep-pocket clientele.
Previous offerings with a large percentage of shares allocated to individual investors include Facebook (NASDAQ:FB), which sold about a quarter of its IPO to the common folk. That 2012 debut closed pennies above the opening $38 price. The stock was below that level for more than a year before coming up for air.
Employees will be able to sell 15% of their shares immediately after the floatation, compared with the traditional six months required for most IPOs. After three months, investors can sell another 15%.
Robinhood IPO Another Step in ‘Democratization’
Robinhood believes its market debut is emblematic of its credo to “democratize stock trading.” The Menlo Park, California-based app pioneered free trading and forced the brokerage industry to drop commissions in 2019.
“Robinhood serves the [approximately 84 million] U.S. households with [less than $100,000] in wealth that existing retail brokers have largely ignored,” Autonomous Research analyst Christian Bolu wrote in a research report. “We size the money app opportunity at [about $120 billion] in revenues implying Robinhood has a significant runway for growth.”
Despite the unconventional elements of the Robinhood IPO, the debut of HOOD stock is not without its risks.
“We expect our revenue for the three months ending September 30, 2021, to be lower, as compared to the three months ended June 30, 2021, as a result of decreased levels of trading activity relative to the record highs in trading activity, particularly in cryptocurrencies, during the three months ended June 30, 2021, and expected seasonality,” Robinhood said in an amended prospectus released last week.
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, including previous stints with Bloomberg News and as a buyside equity research editor.