Robinhood has been all over stock market news in the last week or so after it blocked trading on popular stocks like GameStop (NYSE: GME) and AMC (NYSE: AMC). Millions of users grew angry with the company as the block caused a downfall in stock prices and triggered massive losses for retail traders. After everything though, one question still stands: When Will Robinhood IPO and will this event push it back?
Maybe in 2021?
Talks about a possible Robinhood IPO began last year. In November, Bloomberg reported that the company started asking banks to pitch for roles in an IPO and that they aimed to go public during the first quarter of 2021. Usage of Robinhood surged during the COVID-19 pandemic and an IPO would help boost that volume even more.
The private source that brought about the news also said that the company could reverse its decision to go public at any time. A few weeks later, Robinhood announced that it had selected Goldman Sachs to help prepare it for going public.
If the company does ultimately decide to go public, it might set aside some of its shares for Robinhood users. Bloomberg reported this as an unusual, yet striking move as retail investors do not usually buy into new listings at the offering price. Additionally, by distributing a large number of its shares to its users, this would make for a smaller, first-day trading rally in Robinhood shares.
Maybe Not in 2021?
After the week that Robinhood had with blocking trades, some experts say that its potential IPO may be in danger. Axios writer Dan Primack said that by giving to its critics, Robinhood possibly created a trust issue between the itself and its users. “Robinhood not only has a big user trust problem, it also may have a political problem,” Primack said. “And that translates into an IPO problem, as the company is said to be on the verge of filing confidential paperwork” Primack wrote.
The company claims that its decision to block trading on popular stocks was not its own, but a problem with the clearinghouses that were unable to fill orders due to the massive bill. Robinhood allows users to instantly access their deposited funds and begin trading even before their funds have transferred from their bank account and into Robinhood’s hands. Under normal circumstances, Robinhood would foot that bill while it waits for reimbursement from banks. But last week a surge in retail trading saw Robinhood unable to cover the influx of orders.
CEO Vlad Tenev, however, says that Robinhood does not have a liquidity problem. Admitting to a liquidity problem while trying to go public could spell trouble for the company’s future, but denying the problem altogether tells users that the company is not being transparent about what was an obvious but understandable liquidity issue.
What is Robinhood?
Robinhood (also known as Robinhood Markets) is an online broker that offers commission-free trading through its website and mobile app. As it has zero storefronts, it allows people to invest in ETFs, cryptocurrencies, options and stocks entirely online.
Founded in 2013, the company’s app helped make trading more accessible and fun. With over 13 million accounts, Robinhood paved the way to show aspiring millennial and Gen-Z traders that trading and buying stocks can be as easy as placing a Postmates or Uber Eats order.
It also generates revenue from a wide range of sources; including interest earned on customers’ cash balances, margin lending, and selling order information to high-frequency traders.