Robinhood remains to be on monitor for a sizzling IPO regardless of the GameStop uproar

Omar Marques | LightRocket | Getty Images

Robinhood’s user growth, brand awareness, and rating appear stronger than ever as online brokerage recovers from GameStop trading chaos.

Demand for Robinhood stock in private markets is growing as the start-up likely benefited from headlines and mentions from politicians and celebrities. According to JMP Securities estimates, Robinhood gained 3 million users in the last month alone.

“From a brand awareness perspective, who doesn’t know who Robinhood is?” said Greg Martin, managing director and co-owner of Rainmaker Securities. “Despite some positive and negative press, everyone in the world knows who Robinhood is. You couldn’t have better free publicity.”

The company that pioneered zero commission trading is still considered the primary gateway for young investors to gain access to the markets. It is expected to go public later this year as there is strong demand for fintech stocks like Affirm, which went public on Jan. 13.

According to Rainmaker, who provides funding for stocks in private companies, pre-IPO bids on Robinhood’s stock rose last month during the GameStop madness. Demand also rose after Robinhood CEO Vlad Tenev testified before Congress last week. It’s also the most bidding stock Rainmaker sees in the secondary market right now. The surge in demand could be seen as a vote of confidence in Tenev as it tackled a public relations disaster.

These bids are not guaranteed, but they are usually a good indicator of investor interest in companies at a given price. One of the most recent bids on Robinhood stock was $ 52 per share, down from around $ 15 per share in September.

Private market valuations are often opaque. They are based on external investment as a percentage of the company. They can also be difficult to calculate without knowing a startup’s assets and stocks outstanding. Because of that spike in asking prices, an investor told CNBC that Robinhood’s valuation could be as high as $ 40 billion – more than three times its last publicly disclosed figure.

“With the amount of capital they have now, I expect the company will be the dominant broker going forward and I think the market will recognize that,” said Martin, who is also the founder of Liquid Stock . “The valuation could be very high in the near future, which is a good sign of an IPO.”

Robinhood declined to comment on the timing and evaluation of the IPO.

The Silicon Valley start-up found itself in the middle of a firestorm last month amid the brief bottleneck at GameStop, fueled in part by Reddit-fueled private investors. At the height of GameStop’s rise, the millennial brokerage restricted trading in certain securities due to increased capital requirements from clearing houses.

Demand from Silicon Valley

Robinhood’s decision to restrict trading has been outraged by online retailers. Nevertheless, private investors flocked to support the company. Some venture capitalists, responsible for the $ 3.4 billion emergency capital, pointed to the app’s ability to add customers amid the trading turmoil.

Three Robinhood private investors said there was “strong demand” for part of the company despite sparking a public relations and regulatory crisis.

The financing took place in the form of convertible bonds. These debts are converted into stocks when the broker goes public, and these investors receive a 30% discount off the market price. A venture capitalist told CNBC that he and other investors believed the company would soon go public and that the debt round was an opportunity to “get in at a discount.”

Devin Ryan, an analyst at JMP Securities, estimates Robinhood’s total accounts are now closer to 23 million, including the 3 million gained in January and the 10 million users added in 2020 as investing from home boomed during the pandemic.

Robinhood’s Tenev told Congress last week that the company had delivered more than $ 35 billion in realized profits to investors, implying strong customer and asset growth. The average account size is around $ 5,000, according to the company.

Vlad Tenev, Robinhood

Source: Robinhood

Tenev, who co-founded Robinhood eight years ago, spent more than five hours answering questions from members of the House Financial Services Committee last Thursday. The Robinhood boss was spirited in his responses and calmly stated that the billions in cash injections would be needed to prevent a liquidity crisis from occurring.

An investor who asked not to be named because the corporate strategy was private said Tenev’s testimony “went well” although it was “sometimes painful to watch” as Robinhood’s business model differs from Washington’s.

“Robinhood emerged from this – there was certainly a success for the company, but we are determined to work on it,” said the investor.

Another investor told CNBC that Robinhood supporters are “feeling pretty good” about Tenev’s performance. After 48 hours of the GameStop saga, he said it was clear the Twitter backlash was “insular” as the company continued to add hundreds of thousands of new accounts this week.

“The growth has been great despite Robinhood taking the brunt of the press and congressional questions. Vlad has done a great job and as well as he could have done given the situation,” he said. “He was at the interface to potentially piss off regulators, customers and competitors.”

Some analysts say new regulation could hamper the legal but controversial way of paying for the flow of orders and hurt prospects for the IPO. However, Robinhood investors say its value lies in user engagement, not the revenue model. Investors pointed to its position on the Apple App Store, despite the fact that it prevented customers from trading certain stocks.

“It’s the fastest growing consumer app and has better exposure than social media,” another investor told CNBC. “The majority of these new dealers will not be trading with GameStop.”

Robinhood users … invest in Robinhood?

Some critics, notably Dave Portnoy, CEO of Barstool, believe that Robinhood’s brand, based on the democratization of investment, will not survive the GameStop trade freezes.

However, many expect strong retail demand for Robinhood’s supply as it is the vehicle that allows rookie investors to smoothly access the stock market.

Robinhood could enter the public markets through a direct listing or through a special-purpose acquisition firm, people familiar with the private deals told Bloomberg News. The company has also reportedly considered giving investors the opportunity to invest directly in Robinhood’s initial public offering on its platform.

Airbnb followed a similar playbook by offering stock to its hosts, and the stock more than doubled when it debuted in the public market due to retail involvement. Snowflake was another stock that rose sharply on its first day of trading. Some speculated that retail demand for the name was way above expectations.

Looking ahead to a public debut, Robinhood is now talking about the future of the investment boom it sparked. Some analysts have put into action the idea that Robinhood will bring more banking products or even mortgages to the Millennial App.

The future could also see more brokerage firms combining stock trading and social media in their platforms, CNBC’s Tenev Andrew Ross Sorkin said at the Dealbook DC Policy conference this week. The brokerage firms SoFi and Public already offer this function.

What happened to GameStop, Tenev called it a “5-Sigma” event – meaning it had a 1 in 3.5 million chance. Robinhood should now have enough capital to meet regulatory requirements related to frenzied trading, he said.

GameStop volatility doesn’t seem to be going away, however. Investors flocked back into the video game dealer on Wednesday, sending stocks up more than 100% at one point.

– with reports from CNBC’s Crystal Mercedes.

Comments are closed.