Business

Robinhood’s Stock Drops 8% in its First Day’s Trading

Robinhood priced its public offering at $38 per share last night, the low end of its IPO range. The company was worth around $32 billion at that price. But once the U.S. consumer investing and trading app began to allow investors to trade its shares, they went down sharply, off more than 10% in the first hours of its life as a floating stock.

Robinhood recovered some in later trading, but closed the day worth $34.82 per share, off 8.37%, per Yahoo Finance. The company sold 55,000,000 shares in its IPO, generating gross proceeds of $2.1 billion, though that figure may rise if its underwriting banks purchase their available options. Regardless, the company is now well-capitalized to chart its future according to its own wishes.

Robinhood’s shares priced at the bottom of the targeted price range of $38 to $42 a share, perhaps because of concerns about volatility or perhaps because Robinhood wanted to ensure a pop for its retail investors. And though Robinhood had said it would allocate up to 35 percent of its shares to retail, only 20 percent actually went to retail, which “indicated less interest than expected,” according to The New York Times.

Because the stock traded down, institutional investors may be leery of future IPOs if there are a lot of retail investors involved, according to Robert Le, an analyst for Pitchbook. That may mean bankers and other companies will avoid giving retail investors as much access to future IPOs.

A bad first day of trading may not mean much for Robinhood in the long run. For ex., Facebook had a disastrous IPO in 2012 — pricing at $38, doing not much of anything its first day, and then falling during the following trading days. Facebook’s current share price is $358.32. It is arguably successful!

The stock going down is a surprise after DoorDash and Airbnb had huge debuts. There could be a few things at play, Robinhood made a big chunk of its IPO available to its own users. Or, in practice, Robinhood curtailed early retail demand by offering its investors and traders shares at the same price and level of access that big investors were given. By doing so, Robinhood may have lowered unserved retail interest in its shares, perhaps reshaping its early supply/demand curve.

Robinhood is synonymous with the rise of meme stocks and retail investing. In fact, in a complaint the SEC filed today against Nikola founder Trevor Milton, it says that Milton “embarked on a relentless public relations blitz aimed at a class of investors he called ‘Robinhood investors.” The complaint goes on to say that Milton tracked the number of new Robinhood investors who got into Nikola’s stock as a sign of success.

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