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Robinhood shares are soaring just like the stocks that trade on Robinhood

Reuters/Brendan McDermid/Illustration/File Photo
Stopped out.
  • John Detrixhe
By John Detrixhe

Future of finance reporter

Published

Shares of Robinhood jumped 50% in January despite the GameStop controversy, as investors scramble to get a piece of the brokerage before a much anticipated IPO this year. The fintech’s growing valuation is another sign that investors think the trading app is bulletproof to everything from handwringing over its business model to technology outages and fines.

The latest bids in the secondary market for Robinhood shares equate to a valuation of around $40 billion, according to data from Rainmaker Securities. That’s about double the proposed IPO valuation that Reuters reported in December, citing people familiar with the discussions. Robinhood was valued at $11.7 billion in its private fundraising round in September.

Private-company shares are illiquid and difficult to trade, and information about those transactions can be hard to come by.

Last month, Robinhood CEO Vladimir Tenev was forced to defend his company against conspiracy theories that the platform was in cahoots with hedge funds, which had been betting against GameStop. As volatility in video game retailer’s shares skyrocketed, the clearinghouse that processes stock transactions required brokerages like Robinhood to put up more collateral. Tenev, whose company didn’t have the funds to cover the requirement, briefly restricted the buying of GameStop shares and a few other volatile stocks on Jan. 28 while he went about raising a whopping $3.4 billion from investors. Some market structure experts said the events raised questions about whether Robinhood had set aside enough capital. Charles Schwab and TD Ameritrade said they didn’t have to halt trading in any stocks despite the volatility.

Instead of damaging Robinhood’s valuation, bids for the company’s shares rose. “What they really had was just the biggest free media advertising that they could have ever hoped for,” said Greg Martin, partner at Liquid Stock, which provides financing for shares of pre-IPO companies.

The viral sensation resulted in a surge in app downloads for all brokerages—but especially for Robinhood, according to compiled by Apptopia.

 

Robinhood has had other missteps over the years. The Menlo Park, California-based company was beset by tech outages in March 2020, which its founders said were “not acceptable” and took too long to fix. The brokerage paid a $65 million fine to the Securities and Exchange Commission in December for failing to disclose that it was getting paid for routing users’ orders to trading firms, and that it failed to seek out the best possible deal for its customers. Robinhood neither admitted nor denied the SEC’s findings.

Despite occasional controversy, Robinhood has powered ahead. In Martin’s view, that’s because the app is so slick and easy to use and because the company has such wide name recognition. Investors, meanwhile, have been gobbling up private shares of tech companies in hopes of getting ahead of the IPO mania in the US.

As for Robinhood, the company will get a closer examination next week when an executive from the brokerage is reportedly expected to testify before a House panel on Feb. 18. If its history is any guide, Robinhood, or at least its valuation, has little to fear from the scrutiny.

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