Robinhood IPO - What You Should Know - YouTube

Everyone’s heard of the story of Robin Hood, the fictional, arrow-shooting, vigilante that

became famous for robbing from the rich to give to the poor.

But what do you now about the much-hated Robinhood trading platform, apparently famous for doing

the exact opposite?

The legend of Robin Hood stretches back to the 15th century and it started off as an

inspirational story of justice, equity and expert archery skills.

These days, Robinhood is the name of a commission-free asset trading platform that’s been accused

of doing the exact opposite of its medieval inspiration, fleecing smaller investors for

the benefit of market whales.

The criticism and hate only intensified after their disastrous IPO in late July.

So, is Robinhood a good tool for investors?

Why are IPO’s a risky move if you’re not prepared?

And what other options are available for stock trading and investment that you should be

aware of?

Let’s jump in!

Most novice investors became aware of Robinhood back in early 2021 during the infamous GameStop

stock squeeze.

For those who’ve been living under a rock, GameStop share prices had been slowly declining

for years, escalated by the COVID-19 pandemic throughout 2020.

As game purchases transitioned to online, digital delivery, stock prices had dropped

to the lowest in the company’s history.

Amateur traders in the r/wallstreetbets sub-Reddit noticed this trend and formulated a plan to

buy as much of the GME stock as possible and not trade it.

This created panic amongst short-selling investors who had been leveraging these predictable

losses for years unopposed.

As a result of the amateur traders not selling their shares of stock, the value of shares

significantly increased, creating what is known as a short squeeze and wiping millions

off the portfolios of massive Wall Street Hedge funds.

Apart from being hilarious, the GameStop squeeze was one of the most influential digital protests

on Wall Street to date.

Now many of these amateur Reddit investors used a platform called Robinhood to make their

trades, and at the time, the name made sense.

It was the little guy vs the Wall Street industry and for once, it felt like a win for the underdog.

Then, on January 28, Robinhood restricted all trades on GameStop stocks amongst others,

citing issues with volatile stock and regulatory requirements.

This infuriated investors, many of whom missed their opportunity to cash out at the peak

of the squeeze.

The truth is, they’d simply run out of capital to facilitate the massive number of trades

that went through the platform.

Even after raising a billion extra dollars in emergency capital, trading on GameStop

was heavily limited, at one stage limiting to buying or selling a single GameStop share

per day.

It was a move that many saw as favoring the Wall Street establishment.

Individual investors were stripped of their ability to make money while hedge funds and

institutional investors can continue to trade as normal.

This resulted in tens of thousands of one-star reviews for the Robinhood application on Google

and Apple’s App Stores, so many that the two tech companies actually had to intervene

to remove them.

Since then, Robinhood’s worked hard to improve its services but with its recent IPO debacle,

people are wondering if it’s the same story all over again.

For those of new to the world of investing, an IPO or Initial Price Offering is where

a company decides to transition from a private company into a publicly traded one, limited

by shares and available on the stock exchange.

Generally, this is around the time a company reaches “unicorn status” or a valuation

of around $1 billion dollars.

Robinhood smashed that point some time ago, with the company being valued at $11.7 billion

in September 2020.

On Thursday, July 28, Robinhood launched its IPO as it began trading as a public company

for the very first time.

Despite the hype surrounding the IPO, the launch price of $38 per share quickly dropped

12% before rebounding to close at $35 before the weekend, an almost 5% loss since launch.

Although it’s early days, some critics, including Bloomberg, have called it the worst

IPO debut ever for a business of its size.

This is one of the risks of an IPO though.

Traditionally IPOs are seen as a quick way to make some short-term profits over the initial,

positive, price fluctuations.

But the opposite can also happen.

A lack of confidence or lack of sales in an IPO can drive prices down until they settle

down months later.

It’s a little too early to say if Robinhood’s IPO was a success, but IPOS’s in general

do mean good things for a company.

The massive capital injection that comes from an IPO means expansion plans can begin and

companies can look to acquire new assets, staff and even absorb whole companies.

Publicly traded companies also have access to better credit lines and interest rates.

It’s also much easier to do additional rounds of fundraising though secondary offerings.

There are also distinct brand advantages to being a public company.

You’re afforded a level of prestige and public image that comes with being a legitimate,

corporation.

This helps when it comes to attracting skilled employees and high-quality staff.

Despite all the noise and criticism, keep in mind, they’ve been live for two weeks

at the point of this video.

At the current price, Robinhood’s IPO now pushes the valuation of the company close

to $29 billion with co-founders Vlad and Baiju, who each own around 8% of the company, now

worth just over $2 billion each.

It’s important to note that an IPO’s initial performance doesn’t necessarily dictate

future success.

Here’s two perfect examples.

When Google’s parent company, Alphabet, launched their IPO in 2004, investors made

18% on the first day, and a further 1000% percent since then.

Then we have Facebook who launched at $42 per share before losing a staggering 25% within

the first two weeks of trading.

Investors that didn’t panic and jump ship have since seen increases of almost 400%.

Only time will tell if investing in Robinhood was worth the heart attack.

So how does Robinhood hold up against the other asset trading exchanges out there?

Despite all the doom and gloom, for the average investor, Robinhood is not only useful, but

I’d argue necessary.

Firstly, let’s address some of the main complaints that Robinhood users have about

the platform.

• Lack of customer support.

Robinhood's customer support is notoriously bad.

Users complained of waiting weeks for an answer in the app's Help section, lengthy queues

to speak to someone on the phone, no responses to emails, and a general lack of urgency in

responding to important issues.

This has improved since the beginning of the year, and you can only assume with the cash

injection from the IPO, customer service will be expanded further over the next few months

to years.

• They run a payment for order flow model.

In the practice of payment for order flow, instead of searching for the best stock price,

Robinhood is instead selling your data to high-frequency trading (HFT) firms for a massive

profit.

The HFT firms use this data to build their retail money algorithms which makes them even

more money.

• Lack of account and investment types.

Robinhood only allows trading across four main types of assets - US exchange-listed

stocks and ETFs, options contracts for US exchange-listed Stocks and ETFs, cryptocurrencies,

and American Depository Receipts (ADRs).

There’s an obvious omission of many other types of diversified investment options including

foreign stocks, mutual funds, bonds, fixed-income assets, and Forex.

These options are crucial for investors looking to diversify their portfolio and hedge against

market crashes.

Again, this is an option which may come to future iterations of the Robinhood platform,

but I’d argue the four main options are diverse enough to hedge against fluctuations

as it is.

• Lack of “pro” features.

Many of the advanced technical analysis tools that come standard with other platforms are

only accessible as a “premium” subscription-based add-on.

At the end of the day, many of these tools, plugins and charts are way beyond the understanding

of novice investors and actually end up scaring off new traders.

At the end of the day, Robinhood is a trading platform built for beginners.

And, on the flipside, let’s check out the things that make Robinhood an absolute necessary

tool for amateur asset trading.

• Absolutely user-friendly.

As I’ve stressed repeatedly, Robinhood is a platform geared towards beginners and first-time

investors.

The website and mobile applications are intuitive and easy to use.

• Commission-free trades.

This one is the main reason mini-investors flock to Robinhood.

Many other platforms operate on a minimum fee-based model regardless of the amount traded.

This makes no sense on a platform where the fee could potentially exceed the value of

the trade itself!

• Free to register / use / trade.

Robinhood’s price point is also an attractive selling point.

That price of course being free.

Additional services including gold subscription and live brokerage can be purchased however.

Most investors that start on Robinhood eventually outgrow the limited tools on offer and opt

for a more robust service with additional features.

Let’s take a look at a few and see what the major differences are.

WeBull is an intermediate-level electronic trading platform set up very similarly to

Robinhood.

It’s also free to use with no commissions on stock or option trades.

And just like Robinhood, it’s missing some of the diversified investment options like

bonds and mutual funds.

The main difference lies in the tools available to the average user.

WeBull comes with professional technical tools and charts that may intimidate the novice

investor.

A newbie can very quickly be overwhelmed by opening and closing candles, moving averages

and descending wedges – when all they’re concerned about is the price.

If you’re a resident of the United States, SoFi is positioned as an intuitive online

trading experience with inbuilt, complimentary access to Certified Financial Planners if

you have questions.

There are no minimum amounts to start investing, no account feeds or trading charges and crypto

trading services are also available.

There are options to automate investment orders, however stop-loss orders and no-tax-loss harvesting

techniques aren’t available

Again, investment options are fairly limited but SoFi represents one of the best beginner

investment apps available today.

For all its flaws, Robinhood probably doesn’t deserve all the hate it gets.

Both WeBull and SoFi also suspended trading on GameStop and AMC during the infamous squeeze,

albeit a day later, yet Robinhood copped the majority of the blame.

As a platform, it’s been instrumental in bringing new participation into the stock

market, something that is always welcomed when it comes to total market cap.

We can only assume that after the massive cash boost the latest IPO will bring, services

and offerings will continue to improve over the next few years.

So, if you’re asking me if I recommend Robinhood to new investors, I absolutely do.

It’s a very useful tool for beginners to cut their teeth on before they move onto more

advanced platforms.

That’s all from me, I hope you enjoyed my video!

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If there’s any other topics you’d like me to cover in future videos, please let me

know in the comments, but for now, thanks for watching and I’ll see you on the next

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