The stock-trading app unveiled its initial public offering prospectus on Thursday, pulling back the curtain on its financial performance for the first time.
SAN FRANCISCO — Robinhood, the stock-trading app that grew in popularity and notoriety during the pandemic, revealed skyrocketing revenue and a loss of more than $1.4 billion in the first three months of this year, as it took a key step on Thursday toward one of the year’s most anticipated initial public offerings.
Robinhood made the disclosures in an offering prospectus a day after saying it would pay a $70 million fine — the largest ever imposed by the Financial Industry Regulatory Authority, or FINRA — for misleading customers and harming them with outages.
Its offering, heading into an ebullient and unpredictable stock market, will test whether investors will continue to embrace fast-growing tech start-ups that arrive on Wall Street with uneven profits and plenty of baggage.
In January, Robinhood became the latest in a line of Silicon Valley companies to gain national attention for less-than-ideal reasons when it restricted some trading after a swarm of investors swelled the values of so-called meme stocks like GameStop, the video game retailer.
The move, which Robinhood said it had to make to meet capital requirements, outraged many users, drew nearly 50 lawsuits and led to protests outside the company’s headquarters in Menlo Park, Calif. Its executives were summoned by Congress for a tongue-lashing at a hearing a month later.
But Robinhood emerged from the chaos with greater name recognition and millions more users.
Its listing could serve as a validating moment for the movement of retail trading that took off during the pandemic. In April, Coinbase, a cryptocurrency exchange, went public, in a sign of how the trading of digital currencies was going mainstream.
Robinhood’s debut is also part of a wave of I.P.O.s, which have listed in record numbers this year. This week, 18 companies were expected go public, the most since 2004. On Wednesday, the Chinese ride-hailing giant Didi Chuxing started trading as a public company in one of the largest offerings of the year.
Robinhood has long described itself as an egalitarian force that is bringing stock trading to new types of investors. It does not charge for trades, instead making money by selling customers’ orders to Wall Street firms that give it a small fee for each trade.
The prospectus offered the first full look at the company’s financial performance. Nearly 18 million people now use Robinhood’s app to buy and sell stocks and cryptocurrencies, with $81 billion in assets under its custody.
Revenue was $420 million in the first three months of the year, a greater-than-fourfold jump from $96 million a year earlier. It lost $1.4 billion during that period, far wider than a loss of $53 million a year ago. The company attributed the loss to $3.5 billion in debt that it raised in February.
In 2020, Robinhood eked out a profit of $7 million. It reported profits in two out of the last nine quarters.
“We are all investors,” the prospectus declared. “We are creating a modern financial services platform for everyone.”
As part of its democratizing mission, Robinhood also plans to allow customers to buy into its offering at the listing price in advance, it said. That is a change from traditional offerings, with banks selling the stock to their private clients in advance while retail investors wait until shares began trading. As a result, retail investors often miss out on gains from a “pop” in the price.
For its I.P.O., Robinhood will sell as much as 35 percent of the offering to its customers. The company did not specify the size or valuation of its listing.
Phil Haslett, a co-founder of EquityZen, a marketplace for private stocks, said the move was unusual and could “send some shock waves through the banking industry” on how I.P.O. shares were allocated.
It could also introduce “a ton of risk and volatility” to the first day of trading since Robinhood has no guarantee those buyers won’t immediately dump the stock, he said. “It could lead to wild trading.”
Robinhood was founded by Vlad Tenev, 34, and Baiju Bhatt, 36, in 2013. Inspired by the anti-establishment ethos of the Occupy Wall Street movement, they said, they set out to make trading easy for millennials through an app.
Unlike traditional brokerages, Robinhood’s app emphasized fast, easy-to-make trades and employed an element of fun, with confetti bursts for transactions, lottery scratch-off features and notifications for earnings calls.
The innovations attracted many millennials to the stock market for the first time, but market watchers said the app encouraged a gambling-like approach to investing. Studies show that active trading typically leads to worse outcomes for investors. In March, Robinhood announced that it would remove the confetti from its app.
Still, the company proved to be disruptive. In 2019, competing stock-trading services including Charles Schwab, TD Ameritrade and E-Trade lowered their fees to zero.
As users flocked to Robinhood, venture capital investors followed. The company has raised $5.6 billion in funding that valued it at $11.9 billion, according to Pitchbook. Its biggest shareholders include Ribbit Capital, Index Ventures, New Enterprise Associates and DST Global.
The company has expanded into other areas like cryptocurrency trading, checking accounts and a premium subscription service, Robinhood Gold. Robinhood’s customers hold $11.5 billion of cryptocurrency.
The company’s egalitarian spirit didn’t protect it from attacks during the GameStop fracas. Customers accused it of siding with big institutional Wall Street firms at the expense of regular people after it halted certain trades.
The company’s shareholders, however, stuck with it. Within a week, it raised two rounds of emergency funding totaling $4.4 billion to meet lending requirements for stock trades and to continue making trades. That funding resulted in Robinhood’s outsize loss in the first three months of the year.
Robinhood attracted scrutiny from regulators long before the GameStop frenzy drew the national spotlight. In 2018, it announced that it would offer checking and savings accounts, claiming it was already backed by the Securities Investor Protection Corporation, a consumer protection group that oversees brokerages. After the group said it did not insure checking and savings accounts, Robinhood backtracked and started the service a year later.
Last year, Robinhood was fined $65 million by the Securities and Exchange Commission over charges that it misled customers about how it makes money. And in recent months, Massachusetts has escalated a fight against the app, moving to revoke its license in the state, echoing other complaints that its app entices inexperienced investors to make risky bets.
The company also experienced outages at key moments, including in March last year, when the pandemic hit and stocks went into a free fall.
In its prospectus, Robinhood outlined regulatory scrutiny as a risk factor. It said it expected to be subject to investigations, actions and settlements in the future “given the highly regulated nature of the industries in which we operate.”
Robinhood also highlighted class-action lawsuits related to outages, securities fraud, hacking and the trading halt this year. The company settled a lawsuit by the family of Alex Kearns, a customer who died by suicide last year after making risky trades on Robinhood’s app.
“This is a company that is flying superfast in a really regulated environment,” Mr. Haslett said.
Another risk, Robinhood said, was a decline in the demand for Dogecoin, a joke cryptocurrency based on a meme about a Shiba Inu dog. One-third of the revenue from cryptocurrency trading in the first three months of the year came from Dogecoin, the company said.
Robinhood will list its shares on the Nasdaq exchange under the symbol HOOD. Its offering will be led by Goldman Sachs.
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