$HOOD

Robinhood went public on Thursday, the old-fashioned way — via an IPO with underwriters after a roadshow. The IPO priced at $38 per share, yielding a valuation of $32 billion, and closed its first day of trading down 8.4%. The trading company’s debut is the worst on record among the 51 U.S. firms that have raised as much cash as Robinhood. (Disclosure: I am an investor in Public.com.)

So what will $30 billion buy? At first glance, Robinhood is a roaring success. In 2020 it registered revenue of $959 million, a 245% increase from 2019. RH boasted 18 million monthly active users in March 2021, up from 7 million a year prior. And in keeping with the company’s thesis, “to democratize finance for all,” female users tripled over the past year and more than 25% of users are now people of color, significantly more than at the incumbent brokerage houses.

However … I’ve written before about the problematic aspects of Robinhood’s gamification of investing. The company preys on human weakness, in particular young men’s susceptibility to gambling addiction. That’s still true, and RH’s IPO warrants a deeper dive into the firm’s business model.

 
What Is Robinhood?

The company operates a mobile app that enables consumers to trade stocks, options, and crypto. These orders are the company’s inventory, which it sells to “market makers” — large financial institutions that pare (execute) the trades in the market. As with Google or Facebook, Robinhood’s users are not its customers, but its supply.

This means Robinhood is incentivized to keep its users trading … a lot. The goal: make stock trading as addictive as social media scrolling. RH has enjoyed success here. The proportion of users who check it daily rivals those of Twitter, Snapchat, and Facebook.

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Πηγή: profgalloway.com