Stock trading company Robinhood had a disappointing initial public offering on Wall Street.
On Thursday, the company began offering its stock — trading under the ticker “HOOD” — at $38 per share. By market close, the price had dropped 8% to $34.82; on Friday afternoon, shares were trading at roughly $36.25.
CNN Business reports that the average company witnesses its stock price rise by 33% during its first day of trading; only one-quarter of American IPOs see decreases in prices.
An initial public offering — usually abbreviated as “IPO” and colloquially referred to as “going public” — is a private company’s first attempt to fundraise by selling its shares on a stock exchange.
CNN Business adds that despite its lackluster first day, investors are optimistic about Robinhood’s future:
At the IPO price, the deal values Robinhood at about 21 times trailing revenue, according to Renaissance Capital. That compares a multiple of just five for Charles Schwab, a rival that is expanding at a slower pace.
Robinhood also offered its first shares to its own users:
Robinhood completely disrupted the online brokerage industry by pioneering zero-commission trading. As the company lured new and existing investors to its platform, rivals were forced to eliminate trading fees and join forces just to survive.
Now Robinhood is disrupting the IPO process. The company is allowing its users to buy a chunk — as much as one-third — of its IPO shares before they begin trading on the Nasdaq. Normally, only corporate insiders and powerful institutions can get access to these coveted shares.
Founded by Stanford students Vlad Tenev and Baiju Bhatt, Robinhood has a mission of creating an approachable investment platform that permits novice investors to safely purchase assets. However, the firm faced backlash earlier this year after it barred users from buying shares of GameStop — which was exploding in price amid a coordinated effort from amateur traders communicating via social media.
“We absolutely did not do this at the direction of any market maker or hedge fund or anyone we route to or other market participants,” Tenev explained during a CNBC interview. “The reason we did it was because Robinhood is a brokerage firm; we have lots of financial requirements including SEC net capital requirements and clearinghouse deposits. So that’s money that we have to deposit at various clearinghouses. So some of these requirements fluctuate quite a bit based on volatility in the markets, and they can be substantial in the current environment where there’s a lot of volatility and a lot of concentrated activity in these names that have been going viral on social media.”
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