SAN FRANCISCO – Robinhood, the stock trading app that grew in popularity and notoriety during the pandemic, saw sales skyrocketing for the first three months of this year and a loss of more than $ 1.4 billion when it was released on Thursday an important step towards one of the most anticipated IPOs of the year.
Robinhood made the information in an offering prospectus the day after announcing it would pay a fine of $ 70 million – the highest ever imposed by the Financial Industry Regulatory Authority (FINRA) – for misleading customers and harming them from failure .
Heading into an exuberant and unpredictable stock market, his offering will test whether investors will continue to accept fast-growing tech startups arriving on Wall Street with uneven profits and loads of baggage.
In January, Robinhood became the youngest in a line of Silicon Valley companies to attract national attention for non-ideal reasons when it cut some trading after a swarm of investors drove up the values of so-called meme stocks like GameStop, the video game swelled retailers.
The move Robinhood had to take to meet its capital requirements outraged many of its users, resulted in nearly 50 lawsuits and protests outside the company’s headquarters in Menlo Park, California. The executives were summoned to speak in tongues by Congress a month later at a hearing.
But Robinhood came out of the chaos with greater brand awareness and millions more users.
The company has long described itself as an egalitarian force bringing stock trading to new types of investors. It doesn’t charge any fees on trades, but makes money by selling client orders to Wall Street firms who charge a small fee for each trade.
The prospectus provided an initial full overview of Robinhood’s financial performance. Almost 18 million people now rely on the app to buy and sell stocks and cryptocurrencies, with $ 81 billion in assets under custody.
The company’s revenue for the first three months of the year was $ 420 million, a more than four-fold increase from $ 96 million a year earlier. It lost $ 1.4 billion in that period, much more than a loss of $ 53 million a year ago. The loss resulted from $ 3.5 billion in debt that Robinhood took out in February.
In 2020, the company made a profit of $ 7 million.
“We are all investors,” it says in the prospectus. “We are creating a modern financial services platform for everyone.”
The company was founded in 2013 by Vlad Tenev and Baiju Bhatt. Inspired by the anti-establishment ethos of the Occupy Wall Street movement, they wanted to make it easier for millennials to trade with an app.
Unlike traditional brokers, Robinhood’s app emphasized fast, easy-to-execute trades and provided a fun element with confetti bursts for transactions, lottery scratch functions and notifications for winning calls.
The innovations drew many millennials public for the first time, but market watchers said the app encourages a gambling-like approach to investing. Studies show that active trading usually leads to poorer results for investors. In March, Robinhood announced that it would be removing the confetti from its app.
Still, the company turned out to be disruptive. In 2019, competing stock trading services like Charles Schwab, TD Ameritrade, and E-Trade cut their fees to zero.
As users flocked to Robinhood, venture capital investors followed suit. The company has raised $ 5.6 billion in funding worth $ 11.9 billion, according to the Pitchbook. The largest shareholders include Ribbit Capital, Index Ventures, New Enterprise Associates and DST Global.
Robinhood’s egalitarian spirit did not protect the company from attack during the GameStop Fracas. Clients accused it of sideizing large institutional Wall Street at the expense of ordinary people after it stopped certain trades.
However, the company’s shareholders stayed with them. Within a week, it raised two rounds of emergency funding totaling $ 4.4 billion to meet stock trading lending requirements and continue trading.
Robinhood drew regulatory scrutiny long before the GameStop frenzy caught the national spotlight. In 2018, it announced it would offer checking and savings accounts, claiming it was already backed by Securities Investor Protection Corporation, a consumer protection group that oversees brokerage. After the group said they didn’t insure checking and savings accounts, Robinhood backed out and started the service a year later.
Last year Robinhood was fined $ 65 million by the Securities and Exchange Commission for misleading clients about how she makes money. And in the past few months, Massachusetts has escalated a battle against the app, revoking its license in the state, and reiterating other complaints that its app is tempting inexperienced investors to gamble.
The company also saw defaults at key moments, including last March when the pandemic hit and stocks went into a free fall.
Robinhood described regulatory control as a risk factor in its prospectus.
Robinhood also said it plans to allow its customers to pre-purchase at list price from its range. This year, the company began enabling users to purchase offerings from Clear Secure, the airport security company, and FIG, a medical scrubs start-up.
The company will list its shares on the Nasdaq. The offering is led by Goldman Sachs.