Robinhood Mirrors Deliveroo in Opening IPO up to Public
Dmytro Spilka | Jun 02, 2021 16:00
Although there may not be many aspects of Deliveroo's (LON:ROO) high-profile listing on the London Stock Exchange that other companies will be eager to replicate in a hurry, the notion of opening IPO investment up to individuals rather than allowing shares to be gobbled up by institutional investors clearly resonated with Robinhood ahead of its own Nasdaq flotation.
Robinhood has positioned itself as an investing app that’s eager to ‘democratise finance for all.’ Although there are few links to Deliveroo on the surface, the company’s bold decision to follow in the footsteps of the takeaway delivery app means that it’s at least appearing to prioritise the needs of investors ahead on the convenience of welcoming significant investment from institutions.
Much like Deliveroo, Robinhood has also experienced exponential growth since the arrival of the COVID-19 pandemic last year.
(Image: CNBC)
As the data shows, Robinhood downloads have accelerated at various points throughout 2020 and 2021 so far, with the recent short squeeze of GameStop (NYSE:GME) shares leading to a spike in popularity for the investing app. Likewise, Deliveroo claimed that its volume of orders doubled in 2020 - prompting the company to go public in what resulted in a high-profile bungled arrival on the London Stock Exchange.
Ahead of its IPO, Deliveroo opened users up to the possibility of buying into its IPO. Although this proved to be an unsuccessful attempt to encourage individuals to gain a stake in the company with Deliveroo shares failing to reach its listing price in the weeks since the flotation, Robinhood has a similar plan up their sleeves.
In May 2021, Robinhood announced that it plans to ‘democratise IPOs’ with the launch of its IPO Access platform - an extension of the investing app that opens the prospect of initial public offering investment to retail investors. In potentially listing Robinhood’s IPO for prospective participants, Freedom Holding Corp (NASDAQ:FRHC) acknowledges that as of September 2020, Robinhood Markets is valued at $11.70B.h2 Why It’s Unusual to Welcome Retail IPO Investment/h2
The actions of both Deliveroo and Robinhood in opening up their IPO to retail investors is an unusual step to take. Traditionally, businesses heading for an IPO tend to be more willing to welcome the investment of institutions due to the fact that they’re generally more capable of purchasing a huge volume of shares in one single transaction.
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This has helped to pave the way for a somewhat uneven playing field in the investment landscape, as institutional investors reap the benefits of getting in early on their shares before businesses go public.
(Image: Reuters)
As the chart above shows, institutional investors getting in earlier than their retail counterparts has paved the way for significant profits as newly listed stocks enter the market.
h2 An App For The People?/h2What appears to make Robinhood different to other online brokerage platforms is its willingness to hold retail investors with smaller portfolios as its ideal target market.
(Image: BusinessOfApps)
As the table above shows, the average account size for Robinhood users is far lower than its competitors, signifying a service that’s willing to distance itself from high volume traders and instead cater towards newer arrivals onto the investing landscape.
With this in mind, it’s perhaps unsurprising that Robinhood has taken the bold step of opening its IPO up for retail investors to buy into, and that the app itself appears to be prioritising making investment opportunities open for all users.
The launch of IPO Access represents the latest in a long line of developments made as a means of bringing new frontiers to small scale investors.
However, the app’s role in opening inexperienced users up to the volatility of trading has drawn some criticism. Recently, Wall Street legend Warren Buffett criticised Robinhood by claiming that the app is promoting ‘casino-like behaviour’ among investors.
“American corporations have turned out to be a wonderful place for people to put their money and save but they also make terrific gambling chips,” Buffett explained. “If you cater to those gambling chips when people have money in their pocket for the first time and you tell them they can make 30 or 40 or 50 trades a day and you’re not charging them any commission but you’re selling their order flow or whatever...I hope we don’t have more of it.”
Robinhood has been criticised for stopping the purchases of GameStop shares at the height of January’s short squeeze, which was seen by some investors as an attempt to appease hedge funds.
Although the trading platform has rarely steered clear of controversy in 2021, there’s little doubt that Robinhood has made the holding of stocks and shares more accessible to millions of users. Now that the app’s set to support involvement in IPOs too, it’s another significant hurdle that’s been overcome in opening up access to trading in a way that’s never been possible before.
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