There will be no velvet rope at Robinhood Markets’ big debut on Thursday. The company is offering up to a third of its shares in its initial public

The Robinhood IPO Is Coming Soon. Reasons to Steer Clear of the Stock. | Barron's

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2021-07-24 00:30:06

There will be no velvet rope at Robinhood Markets’ big debut on Thursday. The company is offering up to a third of its shares in its initial public offering to the Average Joes who use its app, instead of the Wall Street suits who usually get first dibs. The wisdom of those crowds may validate the $35 billion valuation that the company projected in a prospectus. But its numbers don’t.

Make no mistake, Robinhood is a truly transformational company. Founders Vlad Tenev and Baiju Bhatt took a simple premise—zero commissions—and upended the brokerage industry. Its success forced the other major brokers to eliminate commissions and opened the door to millions of new investors who had never traded before. The company estimates that nearly half of all new brokerage accounts in the U.S. between 2016 and 2021 were opened at Robinhood. That’s even more impressive given that 2020 was a record year for new accounts in the U.S., and 2021 is shaping up to be even better.

Robinhood is on track to generate enough revenue this year to justify a valuation of $35 billion in theory. It reported revenue of $522 million in the first quarter, and the company estimated that it pulled in between $546 million and $574 million in the second.