Robinhood Volatility in First Week With Venture Capital Firms Offering $100 Million Shares After HOOD Price Spike

Online retail investing app Robinhood had a wild ride since going public. $HOOD sank 28% to $50.90 as investors proposed to sell up to 97.88 million of shares over time, less than a week after its IPO.

Online retail investing app Robinhood had a wild ride since going public. $HOOD sank 28% to $50.90 as investors proposed to sell up to 97.88 million of shares over time, less than a week after its IPO.

Robinhood Platform

Robinhood Markets stock $HOOD has had a volatile week. After a huge run up to $85 on Wednesday it sold off 28% to $50.97 in the premarket Thursday. In a suprise move investors filed to sell nearly 100 million of their Class A common shares less than a week after its initial public offering.

A filing with the U.S. Securities and Exchange Commission detailed investors proposed to sell up to 97.88 million of shares over time. Significantly none of the proceeds will be received by Robinhood, with the selling stockholders getting all of the funds from the sales.

The listed sellers are a group of investors who in February took part in a $3.55 billion convertible debt sale by Robinhood as the company shored up it’s books after huge losses from the GameStock meme stock shutdown left HOOD facing a potentially massive margin call. Thursday’s filing allows for those involved in the first tranche of convertible debt to sell half their shares, while the remaining 50% need to be held until Aug. 25.

The largest of those holders, Venture capital firm New Enterprise Associates, could trim its roughly 10% stake by about 3.9% or 2.9 million shares. Other sellers named in the filing include entities affiliated with Andreessen Horowitz, Iconiq Capital and Ribbit Capital.

The move came as a suprise to most in the market as most public offerings these days are accompanied by a six-month lockup period where insiders are barred from touching their holdings, employees and directors at Robinhood were able to sell a portion of their shares as soon as the first day of trading.

One  new investor is Cathie Wood’s flagship ARK Innovation exchange-traded fund, which was a key driver of Wednesday’s volatility with Robinhood being the fourth most traded stock on the day across retail trading platforms. Retail traders exchanged $467 million worth of shares with $50.5 million in net purchases data compiled by Vanda Securities show.

Robinhood first week

The move higher came after Robinhood’s underwhelming IPO launch. Shares fell more than than 8% on their first day of trading last week after Robinhood priced its IPO at the low end of its expected range.

Analysts were staying away for example Wolfe Research analyst Steve Chubak wrote in a note

“We cannot in good faith recommend investors get involved in HOOD on either the long or short side,” initiating coverage on the Robinhood with a hold-equivalent rating and a share price target of $45.

HOOD then went on to rally for four straight days, including Wednesday’s surge that at one point reached as much as 82% and ballooned Robinhood’s market capitalization to a peak of $65 billion.

The filing is one of the public’s first comprehensive looks at Robinhood’s financials.

Silicon Valley-based Robinhood was founded in 2013 by Vlad Tenev and Baiju Bhatt. The company’s S-1 document filed with the Securities and Exchange Commission revealed HOOD;s plans. Robinhood’s mission to democratize finance by enabling users to trade stocks and ETFs for free on its mobile app. During 2020, its popularity rose to new heights as amateur investing surged amid the coronavirus pandemic.

Revenue Sources

Robinhood doesn’t directly charge its users for trades, it mainly makes money from market makers and high frequency trading firms like Citadel who pay for the order flow from its retail traders. Payments for order flow, or PFOF, accounted for roughly 75% of the company’s revenue last year.

Robinhood also earns revenue from interest on securities and margins loans. Other services including the Robinhood Gold premium subscription service, which gives users access to features including professional research and margin trading.

Robinhood transaction-based revenues has grown 320% from around $170 million in 2019 to about $720 million in 2020. In Q1 2021, transaction revenues grew further by about 340% year-over-year to $420 million.

The revenue surge comes as more retail investors have been attracted to the stock markets from the stay at home forced upon them  through the Covid-19 pandemic. From there we have had the meme stock trading frenzy with GameStop the poster child.

The number of funded accounts on Robinhood grew from around 5.1 million at the end of 2019 to about 12.5 million in 2020 and stood at an estimated 22.5 million as of the end of June 2021. The average revenue per user rose from $65.70 in 2019 to $108.90 in 2020 and to about $137 in Q1 2021, on an annualized basis.

  • Options remain the largest driver of Robinhood’s transaction revenue (47% of sales),
  •  Cryptocurrency business is the fastest-growing.
  • In Q1 2021, crypto-related revenue soared by around 20x year-over-year to almost $88 million.

Robinhood’s other segments have also been expanding, with net interest revenue and other revenue together rising by almost 3x in Q1 compared to last year.  Robinhood is  dependent on its transaction revenues, which accounted for almost 81% of sales over Q1, versus about 75% last year. The biggest risk to Robinhood, other than another Gamestop disaster would be the end of the stockmarket bull market

From the prospectus

Cultural Impact.

We pioneered commission-free stock trading with no account minimums, which the rest of the industry emulated, and we have continued to build relationships with our customers by introducing new products that further expand access to the financial system. We believe we have made investing culturally relevant and understandable, and that our platform is enabling our customers to become long-term investors and take greater control of their finances. Over half of 18-44 year olds in the United States know who Robinhood is according to an internal brand study that we conducted in March 2021. As a further sign of our relevance today, Robinhood reached the number-one spot on the Apple App Store multiple times in the first quarter of 2021 and was frequently ranked number one in the Finance category on the Apple App store during 2020 and the first quarter of 2021.


For the year ended December 31, 2020, as compared to the year ended December 31, 2019:

  • •our total revenue grew 245% to $959 million, up from $278 million;
  • •we recorded net income of $7 million, compared to a net loss of $107 million; and
  • •our Adjusted EBITDA was $155 million, compared to negative $74 million.

In addition, for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020:

  • Our total revenue grew 309% to $522 million, up from $128 million; •we recorded net loss of $1.4 billion, which included a $1.5 billion fair value adjustment to our convertible notes and warrant liability, compared to a net loss of $53 million; and 3
  • Our Adjusted EBITDA was $115 million, compared to negative $47 million. Adjusted EBITDA is a non-GAAP financial measure. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for more information about Adjusted EBITDA, including the definition and limitations of such measure, and a reconciliation of net income (loss) to Adjusted EBITDA. Future Vision.

Our vision is for Robinhood to become the most trusted, lowest-cost, and most culturally relevant money app worldwide. We innovate at the epicenter of finance, technology and access for all. As we look to the future, we want to help Robinhood customers manage all aspects of their financial lives in one place. We envision them moving seamlessly between investing, saving and spending all on the Robinhood platform. When we check our email, there is a go-to app. When we need a map, there is a go-to app. We envision a world in which Robinhood is that go-to app for money. We believe people want to build financial independence and have the tools and ability to own their financial well-being. We look forward to being our customers’ single money app that enables them to achieve those goals.

It is worth repeating, to emphasis that Robinhood makes money through a practice known as “payment for order flow,” in which retail brokers route trade requests to other firms to execute in exchange for a commission. Citadel is one of its main sources of revenue.

For Robinhood it will be a test of a new business line: It only announced its IPO Access platform in May. Clear Secure (YOU.N) used it for 1% of its float earlier this week, and Duolingo also plans to do so. If retail allocations catch on, that’s a boon for the business. This is a developing story.

Source: SEC  Bloomberg

From The TradersComuunity News Desk

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