Robinhood Markets,                       the trading website that transformed the brokerage industry, ended its first day

Robinhood’s Dismal First Day Means Nothing for the Stock—and Isn’t a Win for Retail Investors

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2021-07-30 03:30:09

Robinhood Markets, the trading website that transformed the brokerage industry, ended its first day of trading with a $29 billion market valuation. While its tumultuous public offering may impact future allotments of IPO shares to retail investors, it isn’t necessarily a negative sign for Robinhood stock.

Shares of Robinhood (ticker: HOOD) opened at their IPO price of $38 and dropped more than 12% before rebounding. They closed Thursday at $34.82, down more than 8% from their offer price, making Robinhood a broken deal.

“The drop in stock price doesn’t come as a shock,” said Jay Ritter, a University of Florida professor who studies IPOs.

Ritter pointed to Facebook (FB), which allocated about 25% of its shares, valued at $4 billion, to retail investors with its 2012 IPO. Robinhood set aside up to 35%, or roughly $700 million in stock, for retail. Facebook shares on their first day ended nearly flat at $38.23. The stock then fell another 50% during the next six months before rebounding. Institutional demand for both Robinhood and Facebook “turned out to be a lot weaker than expected,” Ritter said. 

Several different factors caused downward pressure on Robinhood’s stock, said Robert Le, senior analyst, emerging technology at PitchBook. Retail investors, unlike institutional firms, have a tendency to let go of their shares, Le said.

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