After a rollercoaster year full of growth and some controversy, and markets slowly roll into the second half of this year, it is safe to say that 2021 has already been a monumental year for initial public offerings, with 636 having already taken place.
However, this week will see one of the most anticipated IPOs of the year, Robinhood, which is expected to be valued at about $35bn tomorrow.
Founded in 2013, Robinhood offers commission-free trading through its website and mobile app, while also allowing users to buy and sell cryptocurrencies.
“The rise of the trading platform has been extraordinary,” commented Maxim Manturov, head of investment research at Freedom Finance Europe.
Between 2013 and 2020 the platform gained 13m users, averaging a total of one million new users per year.
However, in 2021 its user base skyrocketed with an additional 6m users joining the trading platform in the first two months of last year.
The trading platform gained popularity during the pandemic among retail investors,” Manturov explained.
“The company’s recent growth in popularity has been down to young retail investors, predominantly millennials, who have taken a liking to the apps slick user and customer experience,” he added.
It’s popularity isn’t just with young investors; a plethora of companies have also invested in the platform.
In February 2021, Robinhood announced that it had raised a further $3.4bn in an investment round featuring Ribbit Capital, ICONIQ Capital, Andreessen Horowitz, Sequoia, Index Ventures, and NEA.
However, success does not come without its challenges.
“While Robinhood has expanded rapidly over the last year, it hasn’t come without some public backlash and regulatory scrutiny,” Manturov pointed out.
Regulators in Massachusetts are looking to ban its citizens from trading on the app, claiming that Robinhood’s gamified investing platform caused its customers to take on too much risk, thereby failing the state’s fiduciary rules.
Having said that, the regulation risks are not that high, according to Manturov.
His view is backed up by Ivo Welch, a professor at the University of California, published an article where he studied the behavior of thousands of traders during the bearish trend in March 2020; he came to a conclusion that Robinhood traders tend to make wise moves.
During 2018-2020, investors were seen to earn good profits, which means beginners are not that weak players, after all.
“It must be noted that the company is operating in an extremely competitive market. Charles Schwab recently completed a $26bnacquisition of TD Ameritrade. Morgan Stanley bought E-Trade,” Manturov said.
Moreover, “Chinese-owned investing app WeBull is aiming to duplicate Robinhood’s approach to gamified app investing. Further still, its most direct competitors, eToro is also looking to IPO in 2021,” he concluded.