Robinhood Sinks 11% After Opening At IPO Price of $38

July 29, 2021: Robinhood IPO has possibly been the most eagerly awaited initial public offering of the year. However, sceptics speculate the HOOD stock to be nothing more than an ‘online gamble.’ 

Robinhood’s buzzy IPO has finally debuted in the market today and has begun to trade under the ticker HOOD. The company priced its IPO at $38 per share and opened near that level. While the hype was huge and the stock price was anticipated to go up, it dropped by 11% to $34 in the early trading hours itself, which was at the lower end of its IPO range. 

The Unique and Unusual Robinhood IPO

In an unusual move, the company reserved 20% to 35% of its shares for its users; Generally, companies do not offer their shares directly to regular investors because they are reserved for wealthier brokerage clients and institutional investors (like mutual funds, hedge funds, endowments, etc.). However, the move can be observed as Robinhood’s attempt to give retail investors better access to IPO’s. 

Another unusual approach with Robinhood’s IPO is the limitations for insiders to sell. Generally, investors are obligated not to sell for six months or more, but the company has enabled investors to sell up to 15% immediately, and another 15% after three months, which means an upward pricing factor typically seen is absent in the stock. To these unusual moves, Josh Brown, CEO of Ritholtz Wealth Management asserted, “A lot of this really started out as regulatory arbitrage.”

Robinhood’s ‘Startup and Immature Mentality’

Speculations speak that the company has received severe scrutiny from regulatory agencies. On July 28, Robinhood disclosed that they received requests for information about FINRA registration of its co-founders, and about trading meme stocks like GameStop by company employees. Moreover, the company was hit by a $70 million penalty by the Financial Industry Regulatory Authority (FINRA) in June for its outages and failures relating to option trading practices.

Sceptics also proclaim that even though Robinhood is set to go public as a mature company, the startup mentality of Stanford roommates is barely in the rearview mirror. Many experts also seem to be wary about the IPO and have warned the retail investors to approach every IPO cautiously.