Robinhood stumbles in Wall Street debut

Wall Street didn’t exactly roll out the red carpet to welcome Robinhood after its highly anticipated debut.

The fast-growing trading company finished Thursday at $34.82, down 8 per cent from its initial public offering price. Robinhood failed to score the first-day pop that new companies covet.

And that’s despite Robinhood pricing its IPO at $38, the low end of the expected range. All of this suggests demand is somewhat lukewarm for Robinhood, a company that has revolutionized the way Americans trade but has also been dogged by controversy, reports CNN.

Only about a quarter of US IPOs have dropped during their first day of trading, excluding blank-check companies, according to Professor Jay Ritter from the University of Florida. The average first-day pop is 33 per cent.

The Robinhood IPO values the company at about $32 billion, making it more valuable than major companies including Nasdaq (NDAQ), Southwest Airlines (LUV) and Kroger (KR). That’s well above the $12 billion price tag Robinhood scored in its most recent round of private funding.

The deal is a major milestone for a company that pioneered zero-commission trading and is enjoying explosive growth.

“It’s humbling,” Robinhood CEO Vlad Tenev told CNN’s Julia Chatterley on Thursday. Tenev, an immigrant from Bulgaria, pointed to how he first arrived in New York City as a five-year-old in the early ‘90s and began his entrepreneurial career in New York as well.

“Now to be back here after six years since Robinhood’s launch, it’s really surreal,” Tenev said.

The IPO is raising $2.1 billion and Robinhood began trading on the Nasdaq Thursday under the ticker symbol “HOOD.”

Robinhood’s revenue surged by 245 per cent last year to $959 million as its user growth and trading volume skyrocketed.

“The business has been a juggernaut. They’ve got a great platform they can build off of,” said David Weild, former vice chairman of the Nasdaq who is now the CEO of investment bank Weild & Co.

Investors are paying a premium for Robinhood’s growth.

At the IPO price, the deal values Robinhood at about 21 times trailing revenue, according to Renaissance Capital. That compares a multiple of just five for Charles Schwab (SCHW), a rival that is expanding at a slower pace.

“It seems rich-unless the company can keep up this high growth,” said Kathleen Smith, a principal at Renaissance Capital, which manages the Renaissance IPO ETF (IPO).