IPO Priced at $38, low end of previously guided range


  • Robinhood (HOOD) is to launch on the stock market today, Thursday, July 29.
  • HOOD previously guided the launch price at $38-$42.
  • Robinhood now confirms $38 as the IPO price, the low end of the range.

Robinhood is due to launch on the US stock market today, Thursday, and is sure to garner much attention from both retail and institutional investors. Robinhood had previously guided the IPO price to be in the range of $38 to $42 but confirmed on Wednesday that $38 is to be the listing price. Pricing at the lower end of the range is often seen as a sign of reduced investor demand but it may also be to ensure a successful Initial Public Offering  (IPO) with strong follow on support orders meaning strong price appreciation on the first day of trading. The bar has been set so high now for IPO’s that anything other than a lift-off is seen as a failure. Seasoned and corporate watchers will also be aware that underpricing the issue can leave significant money behind for the founders so it is a tricky negotiating process.

In this case, Goldman Sachs and JPMorgan are leading the issuance and they along with Robinhood founders and board have likely decided on the $38 price for a variety of reasons. For sure they will want a successful launch and avoid any negative publicity that they also suffered from back in the original Gamestop (GME) frenzy. Ever since this, the HOOD IPO has been on the minds of retail traders determined to avoid it and many commenting on social media how they would like to see it fail. The Wall Street Journal reported that the pricing of the IPO at the lower end of the range is a decision by Robinhood to help ensure a good first days trading.

To recap Robinhood had to restrict trading in some stocks (along with other brokers it should be noted) in the original meme stock, GameStop frenzy back in January/February. This was likely due to margin increases from its clearing house due to the explosion of trading in certain stocks, most notably GameStop (GME). This has soured the company’s reputation in the eyes of many retail investors. Despite this Robinhood (HOOD) has set aside 20-35% of its shares for its app users, mostly retail investors. 

Robinhood is an online trading platform with an emphasis on financial markets trading. The company through its app allows trading in major US stocks and options, cryptocurrency through its Robinhood Crypto subsidiary as well as exchange-traded funds (EFT’s). The company has revolutionized the online trading space through its ease of use and simple explanation of option-related trading and probably more importantly commission-free trading.

Robinhood (HOOD) stock news

Robinhood has been in existence since 2013 having been set up by Standford graduates Vlad Tenev and Baiju Bhatt. The Robinhood app was launched in 2013 but it was not until it launched on the Apple app store in 2014 that it began to gain traction with retail investors. Robinhood was relatively well known until the 2021 retail trading frenzy cast it into the stratosphere with volumes and users of the Robinhood app exploding. The company struggled to keep up with the explosion in trading in GameStop (GME) shares. The whole saga eventually led to CEO and founder Vlad Tenev testifying before congress on the issue along with several other senior industry representatives. 

Robinhood recently said for three months ended to March 31 that revenue had grown to $522 million, a growth rate of over 300%. The company said that 2020 total revenue was $959 million an increase of 245% from the previous $278 million for 2019.

Robinhood has 21.3 million monthly active users with an average of $4,500 in their account according to a report by Reuters. The average balance at Schwab and Interactive Brokers is $250,000.

Robinhood is to offer 52.4 million shares for sale with an extra 2.6 million shares to be sold by selling stockholders. After the IPO Vlad Tenev the founder and CEO we well as other related entities will hold about 7.9% of shares according to Reuters. Vlad Tenev will hold more voting power at about 26% with fellow founder Baiju Bhatt holding about 39%, this is common with recent tech IPO’s.

Robinhood stock price

Pricing the shares at $38 values Robinhood at $31.8 billion. 55 million shares are being priced at $38 to raise just over $2 billion. There is also a greenshoe option for the underwriters (Goldman and JP) to purchase a follow on 5.5 million shares. So in total, there is the potential to raise $2.29 billion. A greenshoe is a mechanism used in an IPO to ensure an orderly market. It can be used to stabilize prices if they fall below a certain level after the IPO. The underwriters will step in and buy shares to support the price. The aim is for there to be no need to use the greenshoe as it is generally hoped IPO’s appreciate on the first day of trading. 

The shares will begin trading today, Thursday, July 29 on the Nasdaq under the ticker HOOD. 

 


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