Controversy over GameStop’s trade halt
Retail platform Robinhood Markets, Inc. saw its popularity skyrocket in 2020. The pandemic has brought a flood of new consumers filled with stimulus cash. And the commission-free investing app found itself inundated with new listings. Rumors of an initial public offering flourished and peaked in 2021.
Twitter, TIC Tac and a slice of Ease of Investment application entrepreneurs brought many more new clients to Robinhood. Then came the rise of actions even and the race for retail riches was on. This very entertaining week of stock market chaos started around January 22 and continued until the following week.
Controversy Robinhood GameStop – Photographer: Clay Banks | Source: Unsplash
An online discussion board on Reddit called WallStreetBets gathered the masses to buy stocks GameStop (NYSE: GME) and a few others (AMC Entertainment, Palantir, Blackberry). The stocks were bet against by the short sellers and the WallStreetBets the crew wanted to rise up against them. As the hype spread and the prices of these stocks rose steadily, speculative retail traders jumped into the action. In turn, Robinhood has seen record levels of new customers signing up to the platform.
A brutal reality shock
But then things took a turn for the worse. As the GameStop share price skyrocketed and wiped out hedge funds, Robinhood stopped buying the stock (and a few others). But controversially, it allowed the shares to be sold again. This created panic and many investors lost their temper, selling their shares, causing the price to drop.
In response, Robinhood received a huge backlash, with calls for the platform’s cancellation and the resignation of founder Vlad Tenev.
While the initial backlash seemed certain to spell the end of the Robinhood platform, it quickly became clear that he had the first player advantage in every way. And the controversy did nothing to weaken the reputation of its brand.
The news was not only important among Wall Street and the investing communities. Celebrities join the debate, followed by politicians and the mainstream media. All of this free coverage has given Robinhood a new level of notoriety and a wave of new leads.
Greg Martin, Managing Director and Co-Owner of Rainmaker Securities said:
“From a brand recognition standpoint, who doesn’t know who Robinhood is? Despite the positive and negative press, everyone knows who Robinhood is. They couldn’t have had better free advertising.
According to estimates by JMP Securities, Robinhood could have gained 3 million users last month alone. Which seems doable given that Vlad Tenev, co-founder and CEO of Robinhood Markets, Inc. tweeted, that in January and February, Robinhood welcomed 6 million new clients to its crypto branch. That’s more than all of its crypto listings for all of 2020.
:: wow steps up :: Six million new customers traded through Robinhood Crypto in the first two months of this year. This is more than the number of new crypto traders at Robinhood during the whole of 2020. https://t.co/53tLicYBAw #crypto #doge #bitcoin pic.twitter.com/qxJ9JdY90g
– VLAD (@vladtenev) February 25, 2021
Vlad Tenev – co-founder and CEO of Robinhood Markets, Inc.
Is a Robinhood IPO imminent?
According to sources, and reported by Bloomberg, Robinhood management had discussions last week with underwriters regarding the possibility of going ahead with a potential deposit.in a few weeks, “. This is still in the rumor stage and no final or final decision has been confirmed, including the timing of the IPO. But rumor has it that the IPO could take place this month.
In an investment round last year, the company was valued at around $ 11.7 billion.
However, it has since managed to secure additional funding this year which is expected to be converted to equity during the IPO. A first installment is expected to convert to a valuation of around $ 30 billion or a 30% discount from the public offering (whichever is lower). With the second installment at the lower of the 30% IPO haircut or a valuation of $ 33 billion, Bloomberg confirmed.
Too big to fail?
While the company must face the realities of running such a large company at the behest of the public, while appeasing these powerful Wall Street supporters, it seems like it is well positioned to do so.
With its users growing and valuation on the rise, the company appears in many ways to be in a stronger position than it was a year ago. In response to the trading halt, the government asked Tenev to testify before the U.S. House of Representatives Financial Services Committee. This is part of his statement:
“Robinhood has opened the markets to millions of individual investors. I want to be clear from the outset: Any claim that Robinhood has acted to aid hedge funds or other special interests to the detriment of our clients is absolutely bogus and distorts market rhetoric. Our clients are our top priority, especially the millions of small investors who use our platform every day to invest for their future. “
The billionaire Bulgarian-American entrepreneur went on to say:
“We have since taken steps to raise $ 3.4 billion in additional capital to allow our clients to resume normal trading on the Robinhood platform, including trading in the stocks we restricted on January 28. . “
Friends in high places
The unprecedented increase in business activity caused by the GameStop race has led Robinhood to nearly run out of credit. Raising the additional $ 3.4 billion in such a short time was necessary and impressive. He shows confidence in his platforms and his friends in high places. This enabled Robinhood to deposit the necessary collateral with the Depository Trust & Clearing Corp., the industry’s clearinghouse.
Apparently, demand for Robinhood shares in the private markets is booming. And to appease his loyal customers, he would consider selling some of his shares in his IPO directly to his own users. This could be a very impressive publicity stunt, which could go a long way in rebuilding confidence. Under usual circumstances, retail investors do not have the opportunity to purchase new listings until they are launched during the IPO. In the last year or so, this has resulted in a lot of stocks being launched at a very inflated price. While this does not always lead to losses, it does come with considerable risk.
As GameStop stocks and other meme stocks continue to experience unexplainable stock price volatility and price spikes, Robinhood will need to keep its customers happy. But so far, it’s been proven that even bad publicity can be good.