Robinhood goes public, can “financial democratization” be truly realized?

On July 1, Robinhood, known as the “home of retail investors,” submitted an IPO application to the US Securities and Exchange Commission and allocated 20%-35% of Class A stocks to retail investors at the IPO price. Robinhood, which is bound to carry out “financial democratization” to the end, is really the “Robin Hood” who robs the rich and helps the poor?

Robinhood’s new way to go public, retail investors directly participate in IPO subscription

At the beginning of this year, the American retail investors beating Wall Street around the stock of Gamestop (GME) quickly went out of the circle, swept the world’s social media, and made a lot of noise. Retail investors successfully defeated the famous American short company Citron Research Corporation by buying GME stock. Voices such as “American retail investors stand up!” and “Leeks have defeated institutions!” appeared on social media.

Among them, American retail investors can not do without an Internet brokerage-Robinhood. Surprisingly, Robinhood, as the “retail investor base camp”, came to a “backstab” when the retail investors won a big victory. The platform directly restricted the buying behavior of retail investors, which caused strong dissatisfaction among the majority of retail investors.

Today, the US Internet brokerage Robinhood, known as the “home of retail investors,” submitted an IPO application to the US Securities and Exchange Commission on July 1, with the stock code “HOOD”.

The road to Robinhood’s listing is full of thorns. Before submitting the IPO application, Robinhood was forced to postpone its Crypto currency trading business under the review of the SEC. At the beginning of the GME retail battle, the “plug network cable” incident caused Robinhood to be criticized by a large number of netizens. The day before its announcement of listing, the United States Securities and Exchange Commission (SEC) also announced that it would impose 7000 on this incident. A huge fine of ten thousand dollars.

And what supports Robinhood’s overcoming obstacles in the listing journey is its dazzling financial performance. According to the relevant documents submitted by it in the IPO, Robinhood’s revenue in the first quarter of 2021 was US$522 million, an increase of 309% compared to the first quarter of 2020, and its full-year revenue in 2020 was US$959 million. The company’s assets The scale has increased from 19.2 billion U.S. dollars in 2019 to 81 billion U.S. dollars in 2020.

1626425054644504Data source: Robinhood prospectus

Robinhood’s amazing performance is inseparable from the support of the majority of retail investors. Zero commission, stock splits and simple and easy-to-use interface allow retail investors to enjoy a comprehensive and thoughtful service in stock trading. With the outbreak of the epidemic and the rapid exit of the GME war, the number of Robinhood users has surged. According to its IPO application documents, Robinhood’s monthly active volume increased from 8.6 million in the first quarter of 2020 to 17.7 million in the first quarter of 2021.

Robinhood’s revenue mainly comes from two main businesses, namely Payment for Order Flow (PFOF) and crypto Crypto currency business. The profit models of the two businesses are different. The former packs the customer’s transaction order information on the Robinhood platform and sends it to the market maker. The market maker rebates to Robinhood after getting profits. The more orders, the higher Robinhood profits. In the crypto Crypto currency business, Robinhood has also adopted the profit model of order package rebates in cooperation with market makers. In addition, the margin business also provides a part of its income.

The corporate mission that Robinhood promotes on its official website is: “We’re on a mission to democratize finance for all.” That is, “financial democratization.”

In this IPO, Robinhood is bound to democratize finance to the end. Let the retail investors participate in the IPO subscription link unprecedentedly, and retail investors can have the opportunity to buy Robinhood stock at the price of the company’s IPO. Unlike A-share IPOs, there is no minimum personal account balance limit in Robinhood’s IPO Access. In addition, regardless of the amount of subscription or the balance in the account, the same subscription opportunities can be obtained during the subscription process.

1626425054644170Image source: Robinhood official website

In this subscription activity, Robinhood allocated 20%-35% of its issued Class A shares to individual investors. Retail investors can become shareholders when the stock is listed and grow together with it. Robinhood wants to be a true “retail home”.

Robinhood’s controversial crypto Crypto currency business

According to IPO-related documents submitted by Robinhood, in the first quarter of 2021, 9.5 million users conducted crypto Crypto currency transactions on Robinhood, with a total transaction volume of 88 billion U.S. dollars, contributing 17% of total revenue. As of March 31, 2021, Robinhood holds nearly $11.6 billion worth of cryptocurrency custody assets.

Robinhood launched its crypto Crypto currency business on February 20, 2018, and currently supports seven mainstream cryptocurrencies: Bitcoin , Bitcoin Cash, Bitcoin sv, Dogecoin, Ethereum , Ethereum Classic and Litecoin. It is worth mentioning that Dogecoin contributed 34% of the revenue of the cryptocurrency business in the first quarter of 2021.

Robinhood has made a lot of money in the crypto Crypto currency trading business, and it has also brought a lot of trouble. Different from the stock trading business, the Crypto currency business has problems such as low market transparency and regulatory review policies that have yet to be improved. Related companies will face more stringent reviews when they go public.

The cryptocurrency market fluctuates greatly, and market activity will fluctuate with market conditions. Since May this year, with the sharp drop in currency prices, the popularity of the crypto Crypto currency market has rapidly declined, and Robinhood’s crypto Crypto currency business is also facing the risk of shrinking.

The uncertainty caused by Dogecoin may also have a greater impact on Robinhood’s stock price. As the originator of the “altcoin” player, Dogecoin’s market enthusiasm can be said to have been pushed up by Musk alone, and its instability is much higher than that of mainstream cryptocurrencies such as Bitcoin and Ethereum. But Dogecoin contributes nearly one-third of Robinhood’s cryptocurrency business revenue, and it may and may indeed be difficult for Robinhood to give up.

In May of this year, the market’s review and supervision of crypto Crypto currency exchanges became more stringent. Bitcoin prices plummeted, and the crypto Crypto currency market turned cool. Robinhood’s Crypto currency business mainly relied on the volume of orders. As market activity decreased, transactions The shrinking volume will affect Robinhood’s profitability to a certain extent. Robinhood rushed to go public at the end of this bull market, perhaps because it wanted to obtain a higher IPO valuation when its financial data was the most glorious.

Robinhood, the “face brother” of retail investors?

Ben Edwards, a professor of business and securities law at the University of Nevada, said: “Free apps and the bull market are empowering more and more people to make stupid decisions.”

As we all know, the U.S. capital market is the most developed financial market in the world. Financial institutions monopolize a large number of resources in the market. Major financial institutions have the world’s top financial talents, master the most advanced investment strategies, and have the latest Information in one hand, while holding a large amount of capital at the same time. In such a capital market, it is difficult for retail investors to obtain a satisfactory return on investment from the financial market by means of personal investment. Individual investors often manage their personal finances through the purchase of funds, trusts and other means.

At this time, Robinhood appeared, wearing the hat of “financial democratization.” According to the founder of Robinhood, the company’s mission is to democratize finance, that is, to allow more ordinary people to participate in stock investment, and hope that through the stock market, ordinary people can get the cake of wealth from the rich.

Did the common people really get the cake? Robinhood has attracted a large number of retail investors due to its low threshold and zero commission. The “young” retail investors lack risk identification capabilities and sufficient investment experience, and do not have a fixed investment logic. They often obtain investment-related information through social media. Various noises in the market will affect their investment judgments. It is the normal investment of this type of retail investors to follow the trend and follow the trend. They are typical “irrational investors” in the capital market. When the mainstream media is monopolized by capital, this Such investors are more likely to be “cut leek” by capital.

Human nature is greedy, and reason is the valve of desire. Once they lose their rationality, retail investors will easily plunge into the trap of capital and hit their heads to bloodshed. The CNBC report pointed out that Robinhood has 13 million users in 2020, and more than half of them are new investors without any trading experience. Robinhood also likes to guide users to make high-risk transactions.

One week after submitting the IPO application, retail investors launched a campaign to boycott Robinhood’s listing on social media. Some retail investors even called for shorting Robinhood’s stock. A retail investor wrote on Reddit: “Robinhood cannot even guarantee the normal operation of the application. There is no guarantee that orders will be placed in time, and they continue to provide users with incorrect transaction information.” Retail investors have begun to realize that Robinhood may not be their “good brother”.

In this impetuous society, everyone wants to get rich overnight, but the benefits and risks follow like a shadow. Keep rational investment, adhere to your own investment principles, and have awe of the capital market. That is the right investment mentality.

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