Robinhood’s Shares Fall 8.4% in Public Trading Debut

SAN FRANCISCO — Robinhood helped propel a “meme stock” frenzy this year that sent share prices of small companies on a roller-coaster ride. On Thursday, its own initial public offering was far more subdued.

Shares in the stock-trading start-up opened trading at $38, the same price as its offering, but then fell as much as 11 percent. They ended the day down 8.4 percent at $34.82, valuing the company at $29 billion and showing that investors were skeptical of Robinhood’s grand mission of upending Wall Street.

Robinhood’s free stock-trading service has helped create the conditions for wild trading gyrations in meme stocks, driven by investors hyping their trades on social media. The company’s offering is among the largest in a frenzied year for public market debuts, though few others have had the profile and level of controversy — including service outages, fines, congressional hearings, protests and memes — as Robinhood.

But the tepid trading debut suggested that there may be limits to investors’ euphoria for I.P.O.s, even in a blockbuster year for them. There were 213 in the first six months of the year, more than in any full year for the last decade, according to Renaissance Capital, which tracks I.P.O.s. This week alone was set to have 25 companies go public in the United States, making it the busiest in two decades. Instacart, the grocery delivery company, and Nextdoor, the social network, are among the others expected to go public this year.

A first-day slump like Robinhood’s is rare. On average, shares in I.P.O.s in the United States jumped 39 percent on their first day of trading this year, according to Dealogic, a data provider. But they have since fallen by an average of 1.6 percent, according to Renaissance Capital.

The unpredictability of Robinhood’s initial trading was exacerbated by an unusual move by the company, which has a mission of democratizing finance. Robinhood decided to sell as much as a third of its offering to retail traders via its own app. Most other companies that have gone public have not done this or have offered only a small amount of shares to retail investors.

That offering could have suppressed early trading, since first-day stock price “pops” are often driven by demand from retail investors who were shut out of the I.P.O. Only around 20 percent of the offering was sold to retail customers, a person with knowledge of the offering said, indicating less interest than expected.

Vlad Tenev, Robinhood’s chief executive and a co-founder, said in an interview that the I.P.O. was a “celebration of the individual investor in America.” He added, “We’re just mindful that this is an important moment for our customers as well.”

Robinhood’s lukewarm public debut raises questions for the Silicon Valley company after a rocky year.

Early in the pandemic, as the stock market crashed, Robinhood suffered outages at crucial moments. As the year went on and the app became more popular, commentators raised questions about the level of risk that traders were taking, especially with highly leveraged options trades.

Other aspects of Robinhood’s app, including confetti explosions and lottery scratch-offs, have drawn comparisons to gambling. One young customer, Alex Kearns, killed himself last year after a misunderstanding over debt in his account. Robinhood has since settled with his family.

In January, stock traders banded together on social media to drive up the share price of meme stocks including GameStop, the gaming retailer, and AMC Entertainment, the movie theater chain.

Robinhood had to halt some trades and raise rounds of emergency funding to cover the collateral needed for its customers’ trades. Mr. Tenev’s cellphone was seized by the authorities as part of an investigation into the situation. Robinhood was sued more than 50 times, and Mr. Tenev was summoned to testify in Congress.

The controversies did not seem to hurt Robinhood’s growth. The company added nearly 10 million customers over the last year, bringing its expected total at the end of June to 22.5 million. It more than quadrupled its revenue to $420 million in the first three months of the year, compared with $96 million a year earlier. It also posted a loss of $1.4 billion, which it attributed to the emergency debt that it had raised as a result of the GameStop trading in January.

“Robinhood is a growth stock and it has the potential to continue growing, but the market is saying this growth doesn’t come without risk,” said Josh White, a finance professor at Vanderbilt University, after Robinhood’s shares started trading. “Maybe it’s not a $32 billion stock.”

Mr. Tenev, 34, and Baiju Bhatt, 36, founded Robinhood in 2013 with an eye toward disrupting the entrenched interests of Wall Street. They sought to make stock investing fast and free via their mobile app. Rather than charge a commission on each trade like traditional brokerages, Robinhood sold its customers’ orders to Wall Street firms for a small fee per trade. Eventually, many of Robinhood’s traditional competitors lowered their trading fees to zero.

The company expanded into other areas. It allows people to trade cryptocurrencies, including the joke currency Dogecoin, which accounted for a third of its revenue from crypto trading in the first quarter. It expanded into checking and savings accounts, though that launch was an embarrassment after it claimed the product was backed by a consumer protection group that does not insure such offerings.

More recently Robinhood expanded into I.P.O. offerings, including its own. It also said it would soon introduce retirement saving accounts.

Along the way, Robinhood attracted more than $2 billion in venture funding. Its largest investors include New Enterprise Associates and Index Ventures.

Scott Sandell, an investor at New Enterprise Associates who sits on Robinhood’s board, said the I.P.O. had created needed transparency about Robinhood’s business.

“There has been so much speculation about the company, and much of it is completely false,” he said. “Now that Robinhood is public, it’s all there for everyone to see.”

In its offering prospectus, Robinhood said Mr. Tenev and Mr. Bhatt together would own 16 percent of Robinhood’s shares after the I.P.O., making their combined stakes in the company worth nearly $5 billion. They own a special class of supervoting shares that give them 65 percent of the voting power over the company.

Robinhood used its I.P.O. to promote itself as a democratizing force in finance. In a defiant letter, its founders said that “finance is now as culturally relevant as music and the arts,” and that they were pained by news reports that “lambasted” the next generation of investors.

But in the lead-up to Robinhood’s listing, some traders said they were already plotting to band together to dump the stock or bet against it as retribution for the trading halt in January.

That simmering frustration did not deter Mr. Tenev and Mr. Bhatt on Thursday. Mr. Tenev said he planned to ignore short-term volatility and focus on Robinhood’s customers and products.

“We can’t control the things that happen in the market,” he said. “It’s a moment in time.”

Lauren Hirsch contributed reporting.

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