I was going to use this week's column to take a deep dive into how the new generation of retail investors think in comparison to other retail investors.
But because Robinhood is looking to "democratize" its roadshow, I'll instead look at their initial public offering, which is set for July 29.
There's one point that I made in my 3 Things to Watch Into Happy Hour earlier this week that I want to reiterate. Based on what I'm seeing and hearing, I don't think that this new generation of retail investors have any interest in Robinhood the stock or Robinhood the company.
To understand why, let's start at the beginning. Back in January, Robinhood restricted trading in certain stocks, including GameStop (GME) and AMC Entertainment (AMC) .
Investors in Robinhood -- which included Dave Portnoy of Barstool Sports, among many others -- felt like they had been cheated. And let's not forget Robinhood's 3:30 a.m. margin call.
Then a few weeks ago the Robinhood S-1 dropped.
The company said that it has 18 million funded accounts as of March of this year, up from 7.2 million in March, 2020. In the S-1, the company said it had income of $7.45 million on net revenue of $959 million in 2020, versus a loss of $107 million on $278 million in 2019.
Then there's the Financial Industry Regulatory Authority (FINRA) fine. Robinhood was ordered to pay FINRA $57 million and $12.6 million, plus interest, in restitution.
Robinhood didn't mince words when discussing the fine in a post on its website:
"... FINRA found in its investigation that, despite Robinhood's self-described mission to 'de-mystify finance for all,' during certain periods since September 2016, the firm has negligently communicated false and misleading information to its customers. The false and misleading information concerned a variety of critical issues, including whether customers could place trades on margin, how much cash was in customers' accounts, how much buying power or 'negative buying power' customers had, the risk of loss customers faced in certain options transactions, and whether customers faced margin calls."
So, Robinhood has had a bit of a rough patch on its journey to becoming a public company.
Aside from the GameStop, momentum stocks saga, there are additional core issues with Robinhood which will keep newer investors from buying in.
Most important is payment for order flow. That is essentially when a brokerage is paid a fraction for selling orders to various market makers for trade executions.
That practice, if outlawed or regulated more heavily, could be bad news for Robinhood. But, it's also a significant reason why retail investors have flocked to other brokerages. If you're not regularly on Reddit, then you should know that many Redditors or newer retail investors have unconfirmed theories around Citadel Securities and therefore want to avoid the market maker, among other firms on Wall Street.
In fact, there are several theories centered on Citadel Securities. They're theories because there are quite a few that I've been unable to prove. I'll avoid saying it's a conspiracy here because that's a bit charged of a blanket statement.
"The business model of Robinhood is seriously flawed since 81% of revenues are derived by selling order flows to market makers on the stock exchange. This practice while common on Wall Street, violates HOOD's corporate propaganda that they seek to do good for their clients. Sorry guys you are closer to Bad King John and the Sheriff of Nottingham rather than my boyhood hero who hung out in Sherwood Forest eight centuries ago with Maid Marian and Friar Tuck," wrote Matein Matein Khalid, Chief Investment Officer at Asas Capital, in a LinkedIn post, which was shared by Reddit user Sgmirror on r/WallStreetBets.
If you read the comments, you'll see a common theme that some of the WallStreetBets crowd aren't interested in the Robinhood app, much less the IPO. And there have been a handful of comments where investors talk about shorting it.
I'm not suggesting the IPO won't be successful because there's institutional appetite for the stock. I would say, however, that this is not going to be a momentum name. It's not even going to find a lot of footing with new retail investors.
Robinhood is going to host a live Q&A on its roadshow with co-founder and CEO Vlad Tenev -- who could boost his net worth to as much as $2.5 billion depending on the success of the IPO -- on Saturday, July 24.
You can submit questions here by Friday.
What do you think? Will Robinhood be popular with the new retail investor?
