Robinhood, the online brokerage associated with the surge in day trading by retail investors, is targeting a valuation of $40bn or more in its initial public offering, said people familiar with the plans, as the company published its fundraising prospectus on Thursday.
In a regulatory filing that gave the first look at its financial performance, Robinhood said revenues more than tripled to $959m last year, from $278m in 2019, and its explosive growth continued in the first quarter of this year.
The platform has more than doubled its registered users since the start of 2021 to 31m, it said. Of these, 18m were funded accounts at the end of the first quarter, up 151 per cent from the end of 2020. It had revenue of $522m in the first three months of the year, a 309 per cent increase from the same period the year before.
The prospectus comes a day after the US regulator Finra levied its highest-ever fine against the broker, a penalty of $70m it said was for causing “widespread and significant harm” to its customers. Failings included technical problems on the platform during periods of high volatility, Finra said.
A surge in trading in “meme stocks” such as GameStop forced the platform to suspend trading in some securities in late January, in an incident that strained the brokerage’s finances. Robinhood raced to secure $3.5bn from investors at the time, a fundraising that caused it to record a $1.4bn loss for the quarter. It recorded net income of $7m for full-year 2020.
The IPO valuation will be of particular importance to investors who bought convertible notes issued in February, which will convert into equity at a discount of at least 30 per cent to the offer price. For the most senior debtholders, the conversion is capped at a valuation of roughly $30bn, meaning the higher the IPO price above $43bn, the greater the windfall from having come to the company’s aid.
Robinhood’s rapid growth has been accompanied by increasing regulatory scrutiny, and Vlad Tenev, its co-founder and chief executive, was called to testify before Congress about the January trading curbs.
The prospectus said it had received subpoenas relating to the restrictions, and federal prosecutors executed a search warrant to obtain Tenev’s mobile phone.
The company is additionally under investigation by the California attorney-general’s office, the prospectus revealed, and it has reserved at least $15m for fines in the potential resolution of a money laundering lawsuit from New York state’s Department of Financial Services.