Robinhood’s meme stock condition exacerbates IPO uncertainty Reuters

Authors: Krystal Hu and Echo Wang

(Reuters)-Robinhood Markets Inc’s booming development is due to the so-called meme stocks, such as Game stop company (New York Stock Exchange:) and retail investors. Becoming a meme stock itself is accompanied by trading volatility, which makes some potential investors stop in the IPO.

As retail investors on social media sites such as Reddit speculate on shares such as GameStop and AMC Entertainment (NYSE:) Holdings Inc, the monthly active users of the trading application surged from 11.7 million at the end of December to 21.3 million at the end of June.

Robinhood has taken an unusual move, retaining 20% ​​to 35% of IPO shares for users of its app. The IPO is expected to be priced later on Wednesday and will raise approximately US$2 billion.

Robinhood warned in its IPO registration that the participation of retail investors may trigger a roller coaster ride in its stocks, which may be too risky for those seeking long-term sustainable income.

Reuters comments on social media posts on sites such as Reddit and interviews with Robinhood customers revealed that some retail investors are skeptical about the prospects of an IPO.

The reasons they cited included 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 imposing trading restrictions when the meme stock trading frenzy broke out at the end of January.

“I like Robinhood very much. It sparked my interest in investing. It’s easy to use and simple. I just don’t believe that they will do the right thing for their customers next time they find themselves in trouble.” The mechanic says Zachary Wells is Missouri Robinhood customers in Kansas City, State, have been trading on the app for more than a year.

A Robinhood spokesperson declined to comment.

Robinhood temporarily restricted the purchase of GameStop and other stocks that hedge funds had bet earlier this year, citing the need for the financial and operational stability of its platform. This triggered some investors on Reddit to call for a boycott of Robinhood’s IPO.

The brokerage has also been criticized for relying on “order flow payments” for most of its revenue, according to which it collects fees from market makers to route transactions to them, and does not charge users personal transaction fees.

Critics believe that this approach, adopted by many other brokers, creates a conflict of interest, on the grounds that it will incentivize brokers to send orders to people who pay higher fees. Robinhood argues that it arranges transactions based on the user’s cheapest price, and that it will be more expensive to charge commissions.

Another Robinhood client in Michigan, Sherrie Hardy (Sherrie Hardy) decided to skip the IPO because of concerns that the newly listed stock might fluctuate. She said she would wait until the first quarter earnings before buying the stock.

To be sure, many Robinhood customers plan to take advantage of the product and invest in an IPO. Chris Brumby, manager of a Florida construction company and Robinhood user, said that after watching Robinhood’s live show on Saturday, he is considering investing more than $20,000 in an IPO.

“I like this product, and I know that once they get their cryptocurrency wallet, it will be a big business from new cryptocurrency customers,” Brumby said.

Many IPOs benefited from the exclusion of retail investors, who ultimately promoted the first-day trading boom by snapping up stocks in the open market. By involving many retail investors in the IPO, Robinhood reduces the likelihood of investors seeing huge gains on the first day.

As a sign of potential stock trading volatility, some Robinhood users, such as Benhamish Allen, a 42-year-old teacher from California, plan to borrow from Robinhood to invest in IPOs “on margin” to increase their returns.

“I should be able to borrow money from a company and then use the money I borrowed to buy that company back. It seems stupid,” Allen said.