The Robinhood IPO, now in the rearview mirror, looks like an anticlimax. It is as if a famed Olympic diver finally got to the board, flashed a grin, and … bellyflopped into the pool.
Robinhood Markets Inc. (NASDAQ: HOOD), namesake of its stock-trading app, headquartered in Menlo Park, went public on July 29. It opened at $38, which was already near the low end of its IPO price range, and dropped from there, closing its first day of trading at $34.82 The second day of trading left it nearly flat. It closed Friday at $35.15.
The Robinhood IPO Broke with Convention
The decision to price at the low end for the Robinhood IPO apparently came about because Robinhood and its bankers thought this would avoid a poor first-day performance. The company had sold a lot of its shares to its own customers, and it wanted them to have the satisfying experience of the out-of-the-gate pop.
The Wall Street Journal said, on the basis of unnamed sources “familiar with the matter,” that its own customers received between 20% and 25% of the offering, which is itself a break with Wall Street convention. Institutions usually get most of the offering of an IPO, with only a miniscule portion going to individuals.
Vladimir Tenev, one of the founders and the company’s chief executive, said in an interview, “One of our company values is ‘participation is power.’” It seemed right to the founders, Tenev and Bhiju Bhatt, that their customers should participate and, accordingly, be empowered.
The actual belly flop, then, is an embarrassment. It is not a disaster — many a company has suffered and survived an embarrassing IPO and lived a long successful corporate life thereafter. Indeed, the Robinhood IPO price rose by more than 20% on Tuesday, August 3, which may have eased any feelings hurt by the initial flop. Still, one has to ask: How did the embarrassment happen?
Why Did the Robinhood IPO Flop?
Part of the problem may simply be that the market has lost its appetite for blockbuster new listings.
Roblox (NASDAQ: RBLX), the successful mobile game developer, went public on March 10. It gave early investors a satisfying pop of more than 50% on the first day. It kept its upward momentum up until June, when it nearly hit $100 a share.
Coinbase (NASDAQ: COIN) went public in April. It had a pop in the opening minutes of trading. It also had a sharp drop later in the day, ending at 14% below the opening price. It did well over the next two days though.
Since June, though, Roblox has been losing ground, and it is now more than 20% below that peak price.
Likewise, Coinbase has been slipping. It reached its high two days out of the gate, closing at $342 on April 24. It has gotten nowhere near that neighborhood since mid May and it is now below $240.
Buyers may have had enough of the pop-and-then-drop drama, and that sentiment is what cheated HOOD out of any pop.
Bad Buzz on Social Media Platforms
Robinhood also has more than its share of regulatory troubles, at present and on the way. These could have scared away potential first-day buyers.
Worse, though, it may have lost favor with its own base, the young investors and traders whose decisions are informed by the talk on social media platforms. Some of the louder voices on those platforms blame Robinhood. On January 28, 2021, at the height of the GameStop short squeeze, it restricted trading of that stock. It banned customers from opening new positions in the stock.
As a consequence, investors active on Reddit and Twitter have been urging each other to boycott Robinhood as a public stock.
Like a wealthy baron riding through Sherwood Forest in medieval times with moneybags hanging from his horse’s saddle: Robinhood took risks in going public. Thus far, those risks have not panned out.