I used to be going to make use of this week’s column to dig deeper into how the brand new era of retail buyers take into consideration different retail buyers.
However as a result of Robinhood is trying to “democratize” its roadshow, I am going to as an alternative be taking a look at their preliminary public providing, which is ready for July 29.
There’s a level that I made in my 3 issues to be careful for in glad hour earlier this week that I want to reiterate. From what I see and listen to, I do not suppose this new era of retail buyers has any curiosity in Robinhood the inventory or Robinhood the enterprise.
To know why, let’s begin in the beginning. In January, Robinhood restricted buying and selling in some shares, together with GameStop (GME) and AMC Leisure (AMC).
Robinhood buyers – which included Dave Portnoy of Barstool Sports activities, amongst others – felt that they had been cheated. And let’s not overlook Robinhood’s Margin Name at 3:30 a.m..
Then, just a few weeks in the past, the Robinhood S-1 went down.
The corporate mentioned it had 18 million funded accounts in March of this yr, up from 7.2 million in March 2020. In S-1, the corporate mentioned it had $ 7.45 million in earnings on web gross sales of $ 959 million in 2020, in comparison with a lack of $ 107 million out of $ 278 million in 2019.
Then there’s the high quality from the Monetary Sector Regulatory Authority (FINRA). Robinhood was ordered to pay FINRA $ 57 million and $ 12.6 million, plus curiosity, in restitution.
Robinhood did not mince phrases when discussing the high quality in an article on their web site:
“… FINRA present in its investigation that regardless of Robinhood’s self-proclaimed mission to ‘demystify finance for all’, for sure durations since September 2016, the corporate has negligently communicated false and deceptive info to its purchasers. The deceptive info touched on a wide range of vital points, together with whether or not purchasers might place trades on margin, how a lot cash was in purchasers’ accounts, what was the buying energy or “damaging buying energy” of purchasers, the danger of loss purchasers confronted in sure choices trades, and whether or not purchasers confronted margin calls. “
Thus, Robinhood had a troublesome time in its journey to turn out to be a public firm.
Except for the GameStop saga, dynamic shares, there are different basic points with Robinhood that may forestall new buyers from shopping for.
An important is the fee of the order movement. That is mainly when a brokerage home receives a fraction for promoting orders to varied market makers for executing trades.
This follow, if banned or extra closely regulated, may very well be dangerous information for Robinhood. However it’s additionally a giant purpose why retail buyers have flocked to different brokerages. If you’re not on Reddit commonly, bear in mind that many Redditors or new retail buyers wish to keep away from Citadel Securities, amongst different Wall Avenue corporations.
In reality, there are a number of theories centered on the Citadel. These are theories as a result of there are fairly just a few that I could not show. I am going to keep away from saying it is a conspiracy right here as a result of it is a bit loaded with a basic assertion.
“Robinhood’s enterprise mannequin is critically flawed as 81% of income comes from the sale of order flows to market makers on the trade. This follow, whereas widespread on Wall Avenue, violates HOOD’s company propaganda that they search to do good for his or her clients. Sorry guys, you’re nearer to Unhealthy King John and the Sheriff of Nottingham than to my childhood hero who frolicked in Sherwood Forest eight centuries in the past with Maid Marian and Friar Tuck, “Matein Matein Khalid wrote, funding director at Asas Capital, in a LinkedIn Publish, which was shared by Reddit consumer Sgmirror on r / WallStreetBets.
When you learn the evaluations, you may see a standard theme that a number of the WallStreetBets crowd is not within the Robinhood app, not to mention the IPO. And there have been a handful of feedback the place buyers are speaking about promoting it quick.
I am not saying the IPO will not achieve success as a result of there’s an institutional urge for food for the inventory. I’d say, nonetheless, that it will not be a moose identify. It isn’t even going to seek out a lot room with new retail buyers.
Robinhood will host a reside Q&A on his tour with co-founder and CEO Vlad Tenev – who might enhance his web value to $ 2.5 billion relying on the success of the IPO – on Saturday July 24.
You possibly can submit questions right here by Friday.
What do you suppose? Will Robinhood be widespread with the brand new retail investor?
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