Robinhood IPO Filing Shows Power of the Meme-Stock Boom
Trading app, which plans to list on Nasdaq, generated $522 million of revenue in first quarter, more than quadruple its level from a year earlier
Updated July 1, 2021 6:22 pm ET
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Robinhood Markets Inc. unveiled striking growth figures Thursday in the paperwork for its long-awaited initial public offering—and a long list of growing pains.
The stock-trading app counted 18 million users with funded accounts at the end of March, more than double a year earlier. Revenue in the first quarter of 2021 more than quadrupled to $522 million. The daily average number of cryptocurrency trades on Robinhood expanded by a factor of 14, and net value of cryptocurrencies held in Robinhood users’ accounts rose to $11.6 billion from $481 million.
Meanwhile, users transferred their assets out of Robinhood at nearly 10 times the average rate after it curbed trading in GameStop Corp. and other high-flying stocks in January, a decision that also resulted in about 50 class-action lawsuits. Around 81% of its first-quarter revenue stemmed from a practice criticized by the chair of the Securities and Exchange Commission. And the company is facing a raft of investigations, with federal prosecutors going so far as to execute a search warrant to seize the cellphone of Chief Executive Vlad Tenev.
Robinhood, which plans to list on Nasdaq under the ticker HOOD, is set to be the buzziest company to tap the U.S. IPO market this summer, especially since up to 35% of its offering is being allocated to its own trading customers. The listing could value the stock-trading app at $40 billion or more, The Wall Street Journal previously reported.
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But the company will have to answer for a long list of risk factors and missteps when making its pitch to potential investors. It will also have to convince them that the company can keep growing in the absence of the pandemic stay-at-home orders, government stimulus checks and social-media buzz that fueled its popularity.
Mr. Tenev and his co-founder, Baiju Bhatt, launched Robinhood in 2014, betting that a sleek user interface and commission-free trades would appeal to the large swath of the American public that weren’t in the stock market. Messrs. Tenev and Bhatt “believe it’s important -- not just for investors, but also for the broader markets -- to be able to own stocks directly in the companies you love, without any middlemen,” they wrote in a letter filed with Robinhood’s IPO prospectus.
More than 50% of Robinhood’s customers describe themselves as first-time investors. The company added 5.5 million funded accounts in the firm quarter alone, when everyday investors signed up in droves to participate in rallies in meme stocks like GameStop and cryptocurrencies like dogecoin.
The company recorded $420 million in transaction-based revenue in the first quarter, which accounts for more than $4 of every $5 the company generated. That business encompasses payments it received from high-speed trading firms to which it routed customers’ stock, option and cryptocurrency trades, a controversial practice known as payment for order flow. SEC Chair Gary Gensler said in a June speech that the agency is considering changes to how it regulates payment for order flow.
Robinhood also reported $36 million in first-quarter revenue from lending out customer securities to other money managers, as well as $28 million in interest from margin loans it made so customers could buy more securities. The outstanding amount of margin loans on Robinhood’s platform grew to $5.4 billion in the first quarter from $661 million a year earlier.
Despite the increase in users and revenue, Robinhood reported a first-quarter loss of $1.4 billion. It was largely due to a $1.5 billion one-time charge, related to an emergency fundraising in late January and early February at the height of the GameStop rally. The clearinghouse that processes and settles Robinhood’s trades asked the company to put up billions of dollars in extra collateral to cover potential losses on volatile trades, prompting Robinhood to restrict trading in certain high-flying stocks until it could complete a sale of convertible notes.
For 2020, Robinhood reported profit of $7.4 million on revenue of $958.8 million.
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Robinhood’s filing revealed the company is still dealing with the customer service and regulatory fallout from its late January trading restrictions.
Users opted to transfer roughly 206,000 Robinhood accounts that held $4.1 billion, or about 5% of the company’s assets under custody, to other brokerage firms in the first quarter. In an average quarter in 2020 for Robinhood, only about 22,000 accounts put in transfer requests.
The company, its subsidiaries and Mr. Tenev have received requests for information and some subpoenas related to the trading restrictions from the Department of Justice, the Securities and Exchange Commission, and the New York Attorney General’s Office, among other entities.
Despite agreeing this week to settle a wide-ranging investigation into a host of its business practices for nearly $70 million, Robinhood continues to face a number of federal and state inquiries, according to the filing. Those involve trading outages that hit its platform in March 2020, its handling of user-account takeovers, its practices around approving users to trade options and its compliance with anti-money-laundering rules. Robinhood is currently negotiating a settlement with the New York State Department of Financial Services that would include a monetary penalty of at least $10 million.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com and Corrie Driebusch at corrie.driebusch@wsj.com
Trading app, which plans to list on Nasdaq, generated $522 million of revenue in first quarter, more than quadruple its level from a year earlier
Updated July 1, 2021 6:22 pm ET
Listen to Article 4 minutes
00:00 / 04:18
1x
This article is in your queue.
Robinhood Markets Inc. unveiled striking growth figures Thursday in the paperwork for its long-awaited initial public offering—and a long list of growing pains.
The stock-trading app counted 18 million users with funded accounts at the end of March, more than double a year earlier. Revenue in the first quarter of 2021 more than quadrupled to $522 million. The daily average number of cryptocurrency trades on Robinhood expanded by a factor of 14, and net value of cryptocurrencies held in Robinhood users’ accounts rose to $11.6 billion from $481 million.
Meanwhile, users transferred their assets out of Robinhood at nearly 10 times the average rate after it curbed trading in GameStop Corp. and other high-flying stocks in January, a decision that also resulted in about 50 class-action lawsuits. Around 81% of its first-quarter revenue stemmed from a practice criticized by the chair of the Securities and Exchange Commission. And the company is facing a raft of investigations, with federal prosecutors going so far as to execute a search warrant to seize the cellphone of Chief Executive Vlad Tenev.
Robinhood, which plans to list on Nasdaq under the ticker HOOD, is set to be the buzziest company to tap the U.S. IPO market this summer, especially since up to 35% of its offering is being allocated to its own trading customers. The listing could value the stock-trading app at $40 billion or more, The Wall Street Journal previously reported.
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Markets
A pre-markets primer packed with news, trends and ideas. Plus, up-to-the-minute market data.
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But the company will have to answer for a long list of risk factors and missteps when making its pitch to potential investors. It will also have to convince them that the company can keep growing in the absence of the pandemic stay-at-home orders, government stimulus checks and social-media buzz that fueled its popularity.
Mr. Tenev and his co-founder, Baiju Bhatt, launched Robinhood in 2014, betting that a sleek user interface and commission-free trades would appeal to the large swath of the American public that weren’t in the stock market. Messrs. Tenev and Bhatt “believe it’s important -- not just for investors, but also for the broader markets -- to be able to own stocks directly in the companies you love, without any middlemen,” they wrote in a letter filed with Robinhood’s IPO prospectus.
More than 50% of Robinhood’s customers describe themselves as first-time investors. The company added 5.5 million funded accounts in the firm quarter alone, when everyday investors signed up in droves to participate in rallies in meme stocks like GameStop and cryptocurrencies like dogecoin.
The company recorded $420 million in transaction-based revenue in the first quarter, which accounts for more than $4 of every $5 the company generated. That business encompasses payments it received from high-speed trading firms to which it routed customers’ stock, option and cryptocurrency trades, a controversial practice known as payment for order flow. SEC Chair Gary Gensler said in a June speech that the agency is considering changes to how it regulates payment for order flow.
Robinhood also reported $36 million in first-quarter revenue from lending out customer securities to other money managers, as well as $28 million in interest from margin loans it made so customers could buy more securities. The outstanding amount of margin loans on Robinhood’s platform grew to $5.4 billion in the first quarter from $661 million a year earlier.
Despite the increase in users and revenue, Robinhood reported a first-quarter loss of $1.4 billion. It was largely due to a $1.5 billion one-time charge, related to an emergency fundraising in late January and early February at the height of the GameStop rally. The clearinghouse that processes and settles Robinhood’s trades asked the company to put up billions of dollars in extra collateral to cover potential losses on volatile trades, prompting Robinhood to restrict trading in certain high-flying stocks until it could complete a sale of convertible notes.
For 2020, Robinhood reported profit of $7.4 million on revenue of $958.8 million.
Related Video
The Blank-Check Boom Poses Pitfalls for Investors
YOU MAY ALSO LIKE
UP NEXT
0:00 / 6:36
1:36
The Blank-Check Boom Poses Pitfalls for Investors
Private companies are flooding to special-purpose acquisition companies, or SPACs, to bypass the traditional IPO process and gain a public listing. WSJ explains why some critics say investing in these so-called blank-check companies isn’t worth the risk. Illustration: Zoë Soriano/WSJ
Robinhood’s filing revealed the company is still dealing with the customer service and regulatory fallout from its late January trading restrictions.
Users opted to transfer roughly 206,000 Robinhood accounts that held $4.1 billion, or about 5% of the company’s assets under custody, to other brokerage firms in the first quarter. In an average quarter in 2020 for Robinhood, only about 22,000 accounts put in transfer requests.
The company, its subsidiaries and Mr. Tenev have received requests for information and some subpoenas related to the trading restrictions from the Department of Justice, the Securities and Exchange Commission, and the New York Attorney General’s Office, among other entities.
Despite agreeing this week to settle a wide-ranging investigation into a host of its business practices for nearly $70 million, Robinhood continues to face a number of federal and state inquiries, according to the filing. Those involve trading outages that hit its platform in March 2020, its handling of user-account takeovers, its practices around approving users to trade options and its compliance with anti-money-laundering rules. Robinhood is currently negotiating a settlement with the New York State Department of Financial Services that would include a monetary penalty of at least $10 million.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com and Corrie Driebusch at corrie.driebusch@wsj.com
