Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Robinhood's meme stock status fuels IPO uncertainty

Stock MarketsJul 29, 2021 02:21AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
2/2 © Reuters. FILE PHOTO: Robinhood logo is seen on a smartphone in front of a displayed stock graph in this illustration taken, July 2, 2021. REUTERS/Dado Ruvic/Illustration/File Photo 2/2

By Krystal Hu and Echo Wang

(Reuters) - Robinhood Markets Inc thrived thanks to the popularity of so-called meme stocks such as GameStop Corp (NYSE:GME) with retail investors. Becoming a meme stock itself comes with trading volatility that is giving pause to some potential investors in its initial public offering.

The trading app's monthly active users surged from 11.7 million at the end of December to 21.3 million as of the end of June, as retail investors on social media sites such as Reddit speculated on stocks such as GameStop and AMC Entertainment (NYSE:AMC) Holdings Inc.

In an unusual move, Robinhood has reserved between 20% and 35% of its IPO shares for retail investors who are users of its app. The IPO is expected to price later on Wednesday and raise about $2 billion.

Robinhood has warned in its IPO registration that the participation of retail investors could trigger a rollercoaster ride in its shares that could prove too risky for those seeking long-term sustainable gains.

A Reuters review of social media posts on sites such as Reddit and interviews with Robinhood customers showed that some retail investors were skeptical about the IPO's prospects.

Among the reasons they cited were their assessment that Robinhood's pursuit of a $35 billion valuation was unrealistic, the risk of regulators cracking down on Robinhood's business, and the company's imposition of trading curbs when the meme stock trading frenzy flared up at the end of January.

"I had enjoyed Robinhood a lot, it sparked my interest in investing, it’s easy to use and straightforward. I just don’t trust them to do what's right for their customers the next time they find themselves in a hard spot," said machinist Zachary Wells, a Robinhood customer in Kansas City, Missouri, who has been trading on the app for more than a year.

A Robinhood spokesperson declined to comment.

Robinhood placed temporary restrictions on buying GameStop and other stocks that hedge funds had bet against earlier this year, on grounds this was needed for the financial and operational stability of its platform. It triggered calls among some investors on Reddit for a boycott of Robinhood's IPO.

The brokerage has also been criticized for relying on "payment for order flow" for most of its revenue, under which it receives fees from market makers for routing trades to them and does not charge users for individual trades.

Critics argue the practice, which is used by many other brokers, creates a conflict of interest, on the grounds that it incentivizes brokers to send orders to whoever pays the higher fees. Robinhood contends that it routes trades based on what is cheapest for its users, and that charging a commission would be more expensive.

Sherrie Hardy, another Robinhood customer in Michigan, decided to skip the IPO offerings on concerns that the newly listed shares could be volatile. She said she would wait for its first quarterly earnings before buying the stock.

To be sure, many Robinhood customers plan to take advantage of the offering and invest in the IPO. Chris Brumby, a manager at a construction company in Florida and Robinhood user, said he was considering investing more than $20,000 in the IPO after watching Robinhood's online roadshow on Saturday.

"I like the product and I know once they get their cryptocurrency wallet, it'll be big business from new cryptocurrency customers," Brumby said.

Many IPOs benefit from excluding retail investors, who end up fueling a first-day trading pop by snapping up shares in the open market. By letting many retail investors under the IPO tent, Robinhood is making it less likely that investors will see big gains on the first day.

In a sign of the potential trading volatility in stock, some Robinhood users, such as Benhamish Allen, a 42-year-old teacher from California, plan to invest in the IPO "on margin" by borrowing from Robinhood to juice their returns.

"It seems silly I should be able to borrow money from a company and then buy that company back with the money I borrowed," Allen said.

Robinhood's meme stock status fuels IPO uncertainty

Related Articles

Corporate leverage returns to pre-pandemic levels
Corporate leverage returns to pre-pandemic levels By Reuters - Sep 20, 2021

By Yoruk Bahceli (Reuters) - U.S. and European companies have marked another milestone in their road to recovery from COVID-19, seeing their debt levels relative to profits...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (4)
Ori The Ape
Ori_The_Ape Jul 29, 2021 4:56AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Crooks! Have fun with the FINRA investigation.
Waldemar Gau
Waldemar Gau Jul 28, 2021 4:50PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
i go better to china stocks as for robinhood, they will using darkpool against you
Joe DiMagico
Joe DiMagico Jul 28, 2021 1:25PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I would not touch it with 100m pole. SEC investigating the company seemingly from many angles. I wonder how Reuters missed that.
Antony Dupont Morissette
Antony Dupont Morissette Jul 28, 2021 12:43PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Do not short it if you cannot print synthetics shares to cover. Bear trap alert
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email