Robinhood officially submitted the prospectus and unexpectedly announced that 35% of the new shares will be reserved for platform users
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Robinhood, the "altar" of American retail investors and the darling of the investment community, finally submitted its prospectus officially today after experiencing many "tribulations". If nothing else, it will officially land on NASDAQ in the next 1-2 months. And this year, the most important listing event that the US technology and investment circles are most concerned about has finally come to an end. Robinhood is targeting a valuation of at least $40 billion for the listing.
Robinhood, which was originally in the limelight, had a very bumpy road to listing this year. In January, due to the "retail investor war", the capital flow was once tense, and later it was sued by a large number of users, and it was very busy. It was originally scheduled to go public last month, but it was postponed due to the review of digital currency transactions by the SEC. And just yesterday, the SEC announced a record-breaking $70 million fine on Robinhood for its “systematic” failures.
But none of these can hinder Robinhood's pace of going to the capital market. Judging from its prospectus released today, Robinhood is destined to be one of the most dazzling public companies this year.
The picture is taken from Robinhood's prospectus
The performance broke out in an all-round way, and the growth of the younger generation of users was astonishing, with more than 17.7 million monthly active usersFounded in 2013, Robinhood is a pioneer in free trading in the financial industry. It once won the favor of many brokerages with a zero-commission model.In 2019, it single-handedly forced the entire industry to cancel the trading commission system. In addition, it also innovated new trading models, such as allowing users to "split" stocks, which means that users do not need to buy stocks. Spend $1000, $2000 high investment to buy an Amazon orGoogleGoogle
Instead, you can invest in different amounts such as $20, $100, etc. according to your own situation.
Therefore, in recent years, Robinhood has been enthusiastically sought after by American retail investors, especially the younger generation, and has topped the list of retail investors' favorite trading platforms.
The popularity of Robinhood among the younger generation is also clear in the prospectus. During 2020, the number of platform fund users has soared by 143% to 12.5 million. This strong trend continued into the first quarter of this year. As of March 31 this year, the platform had more than 18 million fund users, of which more than 17.7 million were active users.
About half of these users are first-time investors, and the median age is only 31 years old. The median account size was just $240, and the average account size in February was just $5,000. Although the size of the funds is small, it is clear that Robinhood has "included" most of the young people.
The rapid growth of users also directly promoted the outbreak of Robinhood's performance. According to the prospectus, Robinhood's total revenue in 2020 will be US$959 million, which is more than three times the total revenue of US$278 million in 2019. Revenue for the first quarter of 2021 was $522 million, a 309% increase from $128 million in the first quarter of 2020. This means that Robinhood's revenue is still expected to maintain explosive growth this year, and may even exceed $2 billion in annual revenue. The scale of assets under management by the company has grown even more alarmingly, surging from US$19.2 billion in 2019 to US$81 billion in 2020, a year-on-year increase of more than 310%.
Robinhood's revenue status in recent years, the picture is taken from the prospectus
Judging from all aspects of core data, Robinhood will be Wall Street's favorite "potential and explosive" company, and Robinhood will also set a target valuation of at least US$40 billion when it goes public.
From retail investors to retail investors, 35% of the shares will be returned to platform users
In addition to all kinds of dazzling data in the prospectus, Robinhood also released a "big move" this time - in order to give back to platform users, they plan to allocate 20% to 35% of the Class A shares in their IPO to retail customers, users Subscriptions can be made through a new feature available on Robinhood called IPO Access.
From the beginning of Robinhood's establishment, the purpose he preached was "to make financial markets accessible to everyone". The IPO Access launched in May this year is a very important step.
In the past, IPO shares have historically been reserved for institutional investors or high-net-worth individuals on Wall Street, leaving retail investors with little opportunity to buy shares in newly public companies. That’s why often by the time a new stock starts trading on an exchange, its share price is usually already soaring. Last year, for example, Airbnb’s stock rose nearly 113% when it opened, and DoorDash’s opening rose 86%. By the time retail investors were able to trade, they had already missed out on huge gains.
Robinhood IPO Access feature, image via Medium
Generally speaking, customers who can participate in IPO transactions must have at least US$250,000 in their accounts. And Robinhood is about to break this threshold restriction. Its goal is to allow retail investors to become qualified IPO investors without opening a minimum account, so that more people have the opportunity to buy new shares at the price of the initial public offering. When Robinhood first introduced this new feature in May, it stated that it would allocate a portion of its own stock when it was listed for retail investors to subscribe through this feature.
Sure enough, Robinhood does what it says, and the ratio given is not low. The ratio of 20%-35% is at least billions of dollars.
In addition, according to the prospectus, Robinhood’s Class A shares sold in the IPO will have one voting right. It also has Class B shares, each with 10 votes, but is primarily owned by company founders Baiju Bhatt and Vladimir Tenev.
Banks including Goldman Sachs, Citigroup and JPMorgan Chase are lead underwriters on the deal. In the list of its most important venture capital institutions, we can see D1 Partners, Sequoia Capital, Kleiner Perkins, Google Ventures, Global Voices and other investors are on the list.
Uncertain risks still exist
Although most of the information in today's prospectus is exciting, it also reflects some potential risks that Robinhood faces that cannot be ignored.
First, the emotions of retail investors are difficult to control, and there are many uncertainties in the market. Although Robinhood seems to be the favorite place for retail investors at present, "love and hate" are always in between. The fragility and volatility of retail investors make Robinhood face unpredictable risks at any time. For example, Robinhood lost $1.4 billion in the first quarter of this year, far exceeding the loss of $53 million in the same period last year. The main reason behind this is that in January this year, the "retail investors war against institutions" caused confusion, and the increased capital requirements of the clearing house forced Robinhood to suspend the trading of some popular stocks. In February, Robinhood also urgently raised $3.5 billion in debt financing to ease the capital flow crisis.
Due to the suspension of trading, retail investors once complained to Robinhood-not only lost a large number of users during that period, but also faced the situation of being sued by some retail investors.
Second, there are risks in Robinhood's profit model. For a long time, Robinhood's main income has come from "order flow payment", that is, making money by routing orders to market makers. The company says that market makers provide "competitive prices" and take a certain amount from the order value. Proportion. According to the prospectus, in the past 80% of Robinhood's overall revenue came from order flow payments, and in the first quarter of this year 63% of its revenue came from four market makers.
However, some analysts believe that this practice has a conflict of interest and will incentivize brokers to send orders to the highest payers, but it may not necessarily be the best deal for customers. In mid-December last year, Robinhood was accused of misleading users about its profit model and paid $65 million to the SEC for settlement. In addition, this profit model is highly dependent on high trading volume, once the stock market enters a bear market, it will have a serious impact on the company's performance.The third is that the proportion of cryptocurrency transactions has increased, resulting in greater policy risks. At present, Robinhood has been able to provide trading of seven cryptocurrencies including Bitcoin, Ethereum, and Litecoin. This business is also rapidly growing into an important driver of the company's revenue growth. cryptocurrency exchanges in 2020Yi Cai
Accounting for 3% of total revenue, the proportion has climbed to 17% in the first quarter of 2021.
Among them, Dogecoin accounted for 4% of cryptocurrency trading revenue in the fourth quarter of last year, and it became 34% in the first quarter of this year. This made Dogecoin-derived revenue account for 6% of Robinhood's total company revenue in the first quarter. However, the high volatility of the digital currency market, especially Dogecoin, is well known, and specific regulatory risks have always existed. It is precisely because of Dogecoin’s transaction review that the Robinhood’s listing plan has been postponed. If the proportion of cryptocurrency transactions continues to expand in the future, this will inevitably directly affect Robinhood's future stock price performance.
