Robinhood’s motto is “Democratizing finance for all,” and it’s living up to its name and slogan with its IPO.
Robinhood execs gave a live-streamed presentation to the public on Saturday, 24th July. This presentation has stirred millions of individual investors.
The company plans to sell its users up to 35% of its IPO shares, or up to 18.3 million shares.
Not your typical IPO
Typically, when a company wants to IPO, they will do presentations called “roadshows”. Companies generally give these behind closed doors to hedge funds and bankers to hype them up ahead of the offering. Companies usually allocate the bulk of shares in an initial public offering to institutions. They do this to prevent risks from onboarding too many individual investors. When professional investors buy shares in an IPO, they tend to hold them for a long time. Individual traders could sell the stock immediately.
Thus, what Robinhood is doing is risky and highly unusual. After all, Robinhood is known to defy conventions.
Robinhood’s debut will put its investor-centric messaging of “democratizing finance” to the test. If shares soar, it will enrich its traders. It would also generate goodwill after repeated run-ins with regulators. Anything short of that could be another headache for a firm that convinced young investors to jump into stock trading.
Robinhood allows its customers to sell IPO shares within 30 days. Investors call this action “flipping”. However, if they do so, they can’t use IPO Access for 60 days. Thus, lies the catch. This action could reduce the volatility of their share prices when it starts trading.
The legendary IPO pop occurs typically on the first day, and that momentary jump can bring huge boons to shareholders. This reason is why IPOs are highly sought after, and many investors look forward to it. Since 1980, standard U.S. exchange-listed IPOs have on average risen about 18% from their pre-trading offering price to the close of first-day trading.
However, not all initial offerings “pop’. Facebook’s IPO plummeted over the following months after it started trading publicly.
In conclusion, we’d recommend not to get over emotional when investing.