Love it or hate it, Robinhood has changed the stock market for retail investors.
The trading app was launched in 2015 and offered its users a mobile platform to invest in the stock market. It became best known for commission-free trading.
Its stated mission is “to democratize finance for all.”
Robinhood’s business model generates revenue by selling its user orders to market makers in a practice known as “payment for order flow.” The industry generated supplemental income from the process for years, but Robinhood made it a primary revenue source.
As the app gained popularity, the rest of the industry played catch up. In 2019, E-Trade, TD Ameritrade, and Interactive Brokers Group, Inc. (NASDAQ: IBKR) also began offering some commission-free trading.
But Robinhood users haven’t yet been able to invest in Robinhood, the company. This fact was confirmed by Robinhood CEO Vlad Tenev during a congressional hearing when he was questioned by Rep. Patrick McHenry (R-NC).
Despite its popularity among younger investors, it’s not been all smooth sailing for Robinhood.
In 2020, the company agreed to pay a $65 million fine to settle accusations from the SEC that it was executing its customers’ orders at inferior prices.
In January 2021, Robinhood made the controversial decision to restrict buying of GameStop Corp. (NYSE: GME) and other stocks during a period of extreme volatility. The move brought intense criticism and a congressional hearing.
Despite the controversy and Twitter campaign to #deleterobinhood, the platform saw a record number of app downloads and new accounts opened during and immediately after the volatility, according to Bloomberg reports.
The Robinhood story is far from over — and it appears that retail investors will finally get a chance to invest in this disruptive company.
According to a blog post on its website, “Robinhood Markets, Inc. has confidentially submitted a draft registration statement… [for its] proposed initial public offering … The number of shares to be offered and the price range for the proposed offering have not yet been determined.”
According to a CNBC report, a 2020 round of financing valued the company at $12 billion. But during the January volatility, Robinhood raised $3.4 billion from investors to stay off a potential liquidity problem. The move may have hurt the company’s valuation.
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