This morning the stock brokerage trading app Robinhood will issue shares during a public offering that values the eight-year-old company at some $32 billion. Its young founders, Vlad Tenev, 34, and Baiju Bhatt, 36, is now worth $2 billion and $3 billion, respectively, and if Robinhood’s shares rise from its expected offering price of $38 to as high as $300 over subsequent eight approximately years, each is going to be rewarded with several billion more worth of stock. It took Charles Schwab, the famous brokerage industry innovator, 1 / 4 of a century from founding the corporate in 1971 to grind his thanks to billionaire-dom at age 59.
Despite some glaring hiccups during its rapid rise, the fledgling mobile phone-based brokerage is by almost every measure a triumph of entrepreneurship and innovative marketing. Not since 1975, when the SEC deregulated brokerage commissions, giving rise to discount brokerages like Schwab, has there been a more disruptive force within the retail stock exchange. Robinhood invented no minimum, commission-free trading, which is now standard across the industry including at TD Ameritrade, Fidelity, Schwab, Vanguard, and Merrill Lynch. Robinhood’s mission, oft-repeated, is to “democratize finance for all” and therefore the incontrovertible fact that quite 22 million people — most of them first time investors—have already funded Robinhood accounts is robust evidence of mission accomplished.
After all, consistent with the foremost recent data from the Federal Reserve System only 14% of USA citizens own stocks directly, and slightly quite 50% are invested in stocks indirectly via funds. the 2 Millennial creators of Robinhood and their army novice traders aren’t only shaking the financial foundations of Wall Street, but they’re also moving markets, albeit the wild meme stock surges and purges they generate are unhinged from traditional valuation models. But some caution is warranted. On its thanks to achieving its mission with astonishing speed, Robinhood has committed three would-be sins. First, so as to draw in young inexperienced investors, it gamified, dumbed down, and made its trading app highly addictive, using many of the equivalent techniques employed by social media startups and computer game makers.
Its second sin, consistent with critics, is that underpinning its profit model is that the got to sell its customers’ orders to Wall Street’s biggest sharks, quantitative trading firms like billionaire Ken Griffin’s Citadel Securities. Both of those controversial tactics figured prominently in Congressional Hearings last March over trading in meme stocks like GameStop. Finally, Robinhood has done a poor job handling its customers’ trades, that it’s paid over $130 million in fines, settlements, and penalties. The trading platform was inoperable during the foremost volatile trading days of the Coronavirus crisis, resulting in numerous class-action suit lawsuits, which remain ongoing.
During the meme stock bubble of 2021, it halted trading during a few stocks like GameStop and AMC Entertainment because it faced billions of dollars in margin calls, outraging customers and lawmakers. The incident forced Robinhood to boost billions of dollars in emergency convertible debt in February, which can be yet one more windfall for hedge funds. The $2.5 billion in convertible notes it raised carry high interest rates, low conversion hurdles, and a goody bag of $369 million in warrants, which can dilute the company’s stock. the issues are ongoing. many federal and state authorities still range in on Robinhood and investigate the corporate. Co-founder Vlad Tenev even had his telephone seized.
Ultimately, Robinhood’s future success and legacy will depend upon whether the greatness that Robinhood is achieving, disrupting Wall Street and introducing many newcomers to investing, outweighs the negative effects and risks to which it’s also exposing them. Among its 22 million customers, it considers 98% to be “monthly active users,” greater engagement than a social media app. But its revenues are concentrated, driven by a mob of speculators who are often exhausted during a day, week, or month. Consider this: Robinhood’s customers hold $80 billion in assets under custody, including $2 billion worth of options. However, those options trades represented 37% of Robinhood’s overall revenues half-moon. no matter the risks inherent in its operating model, it’s likely that Robinhood’s baby-faced legions will become tomorrow’s entrepreneurs, financiers, and long-term investors. In 1998, during the dot-com stock frenzy, Forbes ran a canopy profiling young day traders under the headline “A Bunch of youngsters Is Tormenting Wall Street!” Twenty-three years later, the renegade “guerrilla market maker” featured on our cover, Serge Milman is 48. He manages a hedge fund and is co-founder of 840 Venture Partners, a VC firm with investments in startups including Robinhood competitor, Public.com. “I’m totally a part of the establishment now,” says Milman.
Forbes reporters first began tracking Robinhood in 2014, shortly after its inception. In 2015, the brokerage startup was named to our inaugural Fintech 50 and in 2016 founder Vlad Tenev appeared on our 30 Under 30 list. Below you’ll find the simplest of Forbes coverage of Robinhood including our award-winning stories in 2020 covering the tragic death by suicide of 20-year old Robinhood trader Alexander Kearns and our deep dive into Robinhood’s business practices, “The Inside Story Of Robinhood’s Billionaire Founders, Option Kid Cowboys and therefore the Wall Street Sharks That prey on Them.”