Robinhood Stock Opens At $38, Initially Trades Below IPO Price

After months of anticipation, shares of Robinhood Markets Inc. HOOD began trading on Thursday after the popular trading app completed an IPO valuing the company at $32 billion.

Robinhood's Volatile Start: Robinhood opened at $38 after pricing its IPO shares at $38, the low end of its target range of between $38 and $42. The stock traded lower 3.1% to $36.38 in the opening minutes of trading.

Robinhood took a unique approach to its IPO by allocating up to 35% of IPO shares to its own users. That allocation to retail traders is one of several reasons some experts have been skeptical of the Robinhood IPO.

Related Link: Robinhood Discloses New Regulatory Probe One Day Before IPO

Robinhood Risks: Earlier this week, David Trainer, CEO of New Constructs, said Robinhood faces a unique set of risks that make the stock an even bigger gamble than the typical high-growth tech IPO.

“We think the stock is worth no more than $9 billion and that Robinhood will likely not be able to continue the robust growth it saw in 2020 due to looming regulatory risk, increasing competition, and an undifferentiated service,” he said.

In particular, Trainer said Robinhood’s primary revenue source, payment for order flow, has been receiving increasingly intense scrutiny from regulators in 2021.

Trainer’s $9-billion valuation suggests he sees more than 70% downside to Robinhood’s $38 IPO price.

A new Benzinga Twitter poll suggests traders seem to agree with Trainer’s assessment. When asked if they would be buying shares of Robinhood Thursday, 74.7% of respondents answered “no,” while only 15.4% answered “yes.”

Listen to the Power Hour Podcast cover the Robinhood IPO here. 

New Probe Into Robinhood: On Wednesday, Robinhood added to its growing list of controversies when it disclosed it has received inquiries from the Financial Industry Regulatory Authority and the Securities and Exchange Commission related to employee trading of so-called meme stocks and the FINRA registration of CEO Vlad Tenev.

In a new filing, Robinhood said the primary focus of the probes is whether Robinhood employees traded stocks like GameStop Corp. GME and AMC Entertainment Holdings Inc AMC prior to controversial temporary buying restrictions Robinhood placed on the stocks Jan. 28, 2021.

Regulators are also investigating the fact CEO Vlad Tenev is not registered with FINRA, which typically requires the CEOs of registered broker dealers to be licensed and trained in market rules and risks.

In June, Robinhood was fined $70 million by FINRA for “systemic supervisory failures” that led to outages of the platform during the extremely volatile periods of March 2020.

The record fine included allegations of misleading communication and trading practices by Robinhood as well.

Robinhood is also facing more than 90 lawsuits related to its trading halts of GameStop and other equities back in February.

Benzinga’s Take: Despite the risks, there are still plenty of things for Robinhood IPO buyers to like about the stock, especially Robinhood’s staggering growth numbers.

In recent filings, Robinhood said it generated 309% revenue growth in the first quarter of 2021 thanks to a boom in retail stock trading during the pandemic.

Photo: courtesy of Robinhood.