Robinhood is trying to go from PR nightmare to IPO. In this market, it might just work #Breaking112
The controversy swirling around Robinhood is a textbook example of the type of attention startups seek to avoid before launching an IPO. But the market is so hot that it might not matter and Robinhood appears to be forging ahead with what could be one of the highest profile IPOs of the year.
“You would be negligent not to take the company public now,” David Weild, the former vice chairman at Nasdaq, told CNN Business. “This is one of the greatest markets of all time. That stuff doesn’t hang around long. So, full steam ahead.”
Best start to a year for IPOs ever
But old-fashioned IPOs are on fire, too. US-listed traditional IPOs have raised $34.9 billion so far in 2021, nearly five times what they raised through the same period last year, Dealogic reports. That’s the highest for this point of any year since 1995.
In short, the market is welcoming high-growth companies with open arms. And investors are unlikely to be scared by Robinhood’s baggage — especially in this period of rock-bottom interest rates.
“What are the alternatives? There is massive liquidity in the market,” said Weild, who is now the CEO of investment bank Weild & Co.
Valuation haircut for Robinhood?
Some of Robinhood’s rivals are also going public.
“The Robinhood IPO process is underway,” Kathleen Smith, principal at Renaissance Capital, wrote in an email.
Smith, whose firm runs an ETF focused exclusively on the US IPO market, predicted “strong interest” among investors and an ultimately “successful IPO” for Robinhood. But she warned that obstacles, including regulatory scrutiny over Robinhood’s business model, “may cause investors to put a haircut on its valuation.”
In fact, the negative balance would have been erased by the exercise and settlement of options he held, the lawsuit said. Robinhood said it was “devastated” by the suicide and that it has made a series of improvements to its platform, including live voice support for some customers and providing additional guidance.
Booming user growth may trump PR nightmares
Still, investors are likely to be impressed by how rapidly Robinhood is growing — despite, or perhaps even because of — the company’s controversies. Its zero-commission business model transformed the online trading industry, forcing established rivals such as TD Ameritrade and Charles Schwab to follow suit and seek merger partners to survive.
“I don’t think the market will punish [Robinhood]. Their growth is strong. Their business model is strong,” said Robert Le, fintech analyst at PitchBook. “Even in January, with customers angry, they still had over 1 million customers sign up.”
“Robinhood has the potential to be a much larger financial institution than some discount brokerages of the past,” Le said, adding that it has the brand recognition to push into new areas including checking accounts, retirement products and credit.
“They won’t end up like E*Trade: a slow-growing brokerage comfortable in their space that just chugged along after their IPO,” Le said. “I don’t see Robinhood going that route.”