Here is what we learned from filing the controversial trading app for release to the public.
A day after being hit with a record fine from a US financial regulator, Robinhood filed a much-anticipated IPO application.
With the move, the fast growing but controversial trading app revealed a window into its finances and the potential challenges ahead.
Robinhood was profitable last year, earning $ 7.5 million on net income of $ 959 million, according to its filing with the U.S. Securities and Exchange Commission.
It revealed that the number of accounts funded on its platform increased to 18 million in March of this year, from 7.2 million in 2020. Meanwhile, its assets under custody rose sharply from 19.2 million dollars last March to $ 80 billion this year.
What is Robinhood?
Robinhood, headquartered in California, was founded in 2013 and has made a name for itself by offering commission-free stock trading through its mobile app, with stock, cryptocurrency and options trading. .
The app then earns its money by selling order information to merchants at high frequency, lending on margin, and offering a premium paid service.
The company says its goal is to make investing accessible to everyone, and its no-cost gamified approach has attracted millions of users, including many young and new investors.
But its business model has also attracted a lot of attention.
Earlier this week, he was ordered to pay nearly $ 70 million in penalties by the U.S. Financial Industry Regulatory Authority. In the biggest financial penalty ever for the organization, it fined Robinhood $ 57 million and ordered it to pay $ 12.6 million in restitution to thousands of customers.
These penalties were related to technical failures suffered by the application last year, a lack of due diligence before allowing clients to enter option trades and providing “false or misleading information” to clients. .
It has also recently come under scrutiny by the Securities and Exchange Commission and Massachusetts regulators for misleading and manipulating users.
Robinhood was also criticized for his role in the GameStop commercial saga earlier this year. It has been criticized by users after it imposed restrictions on trading at the height of the retail investor frenzy in January, after which the company’s CEO, Vladimir Tenev, was toast in a congressional hearing.
What else did we learn from the IPO filing?
Robinhood plans to list its shares on the Nasdaq stock exchange and hopes to raise $ 100 million by going public.
He also plans to include his own clients in the IPO. The company said it would set aside up to 35% shares for retail investors on its trading platform.
But Robinhood also described several risk factors in its IPO prospectus.
He said the majority of his income is based on transactions, including the controversial practice known as Payment for Order Flow, or PFOF.
“Reduced price spreads of securities, reduced levels of trading activity in general, changes in our trading relationships with market makers and any new regulations or bans on PFOF and similar practices may result in reduced profitability. , increased compliance costs and increased potential for negative publicity, âthe company said in its filing.
He also revealed that he reached an out-of-court settlement with the family of a 20-year-old user who committed suicide last year after mistakenly believing he had racked up big losses on the trading application. The family sued Robinhood, accusing the company of “wrongful death, negligent infliction of emotional distress and unfair business practices.”
âWe have grown rapidly in recent years and have limited operating experience at our current scale of operations,â Robinhood said in the risk factors section of its prospectus.
âIf we fail to manage our growth effectively, our financial performance could suffer and our brand and corporate culture could suffer. “
But whatever the outcome of the next IPO, it will likely be watched closely by investors, both those on Wall Street and those with a mobile app at home.