Robinhood’s IPO is different than others.
A handful of firms last year watched their share price boosted up as they debuted in the public market. Last year, as one example, Airbnb (ABNB) came from an IPO value of $68 to reach $146 as its stock started trading.
Buying shares of an IPO and getting the initial “pop” sounds great, but normal investors usually cannot buy in (they are normally reserved for large institutional investors and the wealthy). Regular people have to wait until the shares start selling on the market – and if you want the pop, it could be too late.
In a weird move, however, the stock app called Robinhood is giving a third of its IPO to its customers; Robinhood has 17.7 million people who routinely use the app.
Robinhood stock is anticipated to start trading Thursday with the ticker HOOD, and the firm believes it will be valued at more than $30 billion with shares of almost $40 each.
IPO pops are not always so loved because a large one means the firm might not have sold the shares at the correct price — but they attract a lot of press. Especially these days: In 2020, the market had the biggest average IPO initial pop in years. Since this, it has cooled, but the average initial increase is still more than 20%.
It gives a powerful marketing tool for Robinhood to sell its shares to its own customers, who can then take advantage of a pop if it happens, though it’s not completely guaranteed it will.
But why would they want to pre-sell to their customers in the first place?
Robinhood says its goal is to democratize the stock market – to give normal investors better access to markets and for a cheaper price. As such, giving something that is rarely given to regular people (IPO shares) is in line with that philosophy.
What’s more, the move is a smart one because if you’re a Robinhood customer, you might now think twice about leaving the app for a competitor. Owning Robinhood shares could make a lot more loyal Robinhood customers.
Author: Scott Dowdy