One of the most anticipated IPOs of 2021 finally comes into focus, as online investing platform Robinhood Markets filed its S-1 registration form with the Securities and Exchange Commission (SEC) on July 1, 2021, giving potential investors greater visibility into its torrid growth over the past 18 months. Robinhood plans to debut on the Nasdaq under the ticker symbol HOOD.
The prospectus showed that Robinhood’s client base more than doubled from 7.2 million in 2020, to 18 million funded retail clients as of 2021. Company revenues also rose to the tune of 309% over the past year, to $522 million in the first quarter of 2021, from $128 million the same period in 2020, but posted a loss of more than $1.4 billion in the first quarter.
Planning to raise up to $100 million in its public debut, Robinhood stated that it intended to use IPO proceeds to cover the cost of operations, which have exceeded revenues for most of its existence. Announcing that it would offer between 20% to 35% of its IPO shares to retail investors, Robinhood extends a much larger share than most companies, which typically offer around 10%. However, Robinhood also makes its debut at a time when the company has drawn enhanced public and regulatory scrutiny.
Just earlier this week on June 30, Robinhood was fined $70 million in penalties by The Financial Industry Regulatory Authority (FINRA). It was the largest fine ever imposed by the independent regulator, to settle charges regarding the technical failure of its online trading platform in March 2020. And Robinhood continued to experience trading outages in 2021, as the popularity of its app surged and the return of the meme stock trading overwhelmed its systems.
The penalty wasn't Robinhood's first. In December of 2020, Robinhood paid the SEC $65 million related to charges that it was misleading its customers about how the trading app makes money and failing to deliver the promised best execution of trades. That settlement followed a complaint by the Massachusetts Attorney General which accused Robinhood of using predatory marketing on inexperienced customers.
Robinhood was also sued for wrongful death by the family of Alex Kearns, a 20-year old customer who committed suicide last June after he wrongly believed that he had incurred massive losses while trading options on the app.
Though Robinhood has taken steps to improve its services and help educate its customers to prevent further incidents, these events, and some of the company’s business practices, such as its reliance on payment for order flow (PFOF), have continued to attract the attention of regulators.