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Robinhood has priced its shares at $38 apiece, the low end of its target range, reflecting slack investor demand for the highly anticipated initial public offering of the popular trading app.
The company, which aimed to sell 55m shares, had set a range between $38-$42 a share. While the hottest tech IPOs often price above of expectations, Robinhood’s value indicates that investor appetite was not insatiable for the brokerage’s stock.
The $38 final offering price announced late on Wednesday gives Robinhood a valuation of $31.7bn. Private investors previously valued it at more than $11bn in August. Shares are expected to begin trading on Thursday on the Nasdaq stock market.
California-based Robinhood became a venue of choice for many first-time stock investors, offering commission-free trades that it encouraged with rewards, bonuses and push notifications. With a median age of 31, its customers are often younger and have smaller account balances than those of established online brokerages such as Schwab, Fidelity and ETrade.
It has recorded explosive growth, doubling the number of accounts on its platform since the start of the year to 31m.
However, Robinhood has also come under fire from regulators for the game-like features on its app, limited customer service, and dependence on a controversial practice of selling trades called payment for order flow. In June the Financial Industry Regulatory Authority fined Robinhood $70m for causing “widespread and significant harm” to customers. It was the biggest penalty ever issued by the authority.
The offering allocated up to 35 per cent of shares to its own customers. Modest appetite for Robinhood’s IPO suggests investors were not immune to the recent high-profile scrutiny as well as concerns about how the brokerage would sustain its high trading volumes in a post-pandemic world where people had time for other pursuits.
Robinhood’s offering paves the way for a windfall for its executives and investors. At the IPO price, Robinhood co-founders Baiju Bhatt and Vlad Tenev would own shares worth $3bn and $2bn, respectively.
Index Ventures, the company’s largest outside investor, would have a stake worth $3.2bn.
Robinhood’s extraordinary growth has periodically led to technical outages during periods of elevated volume, and during a meteoric rise in shares of the meme stock GameStop in January the platform had to suspend trading and raise billions in order to meet capital requirements to market makers.
Investors that provided the $3.5bn in emergency funding stand to receive shares at a 30 per cent discount to the offering price, as their debt converts into equity.
Bhatt and Tenev will retain majority voting control over Robinhood through a dual-class share structure, meaning they will have a minimum of 65 per cent of the voting rights despite holding less than 20 per cent of the company’s shares.
This high level of voting control was cited by institutional investors as a concern in participating in the offering, despite Robinhood’s strong recent performance.