Robinhood has the worst EVER debut for IPO its size: Shares plunge 8.4 percent after app that helped fuel meme stocks like GameStop is shunned by investors
- Robinhood shares debuted Thursday, but investors didn't like what they saw
- The company's shares dropped 8.4% even as it had been expected to rise
- GameStop, AMC Theaters and other stocks had been fueled by the app's users
- Critics say its no-cost trades and easy-to-use app are dangerous for novices
- It's paid regulatory fines and remains under investigation for its practices
- CEO Vlad Tenev hit back at critics and said his app helped create wealth
Robinhood shares fell sharply on their first day of trading after the app that helped fuel the 'meme' stock phenomenon that pumped up GameStop and other companies flopped in its own debut.
The company, which opened trade Thursday in its initial public offering, logged a share drop of nearly 8.4 percent.
The app's easy-to-use interface has made it a hit among young investors trading from home on cryptocurrencies and stocks such as GameStop Corp during the COVID-19 pandemic. At one point, for instance, GameStop's shares soared more than 1,700 percent.
Paired with posts on Reddit forums, Robinhood has been heralded as giving 'regular' investors - especially younger, tech-savvy ones - better access to the markets.
But the company has been under scrutiny from regulators and recently paid a $70 million fine for 'systemic' failures, among other issues.
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![Robinhood co-founder Vlad Tenev on the jumbotron outside the Nasdaq market offices on Times Square pumps up his stock on the day it debuted - as a flop, dropping more than 8%](https://i.dailymail.co.uk/1s/2021/07/29/22/46066251-9840027-image-a-11_1627594441849.jpg)
Robinhood co-founder Vlad Tenev on the jumbotron outside the Nasdaq market offices on Times Square pumps up his stock on the day it debuted - as a flop, dropping more than 8%
![The company's shares dropped by nearly 8.4 percent in their trading debut Thursday](https://i.dailymail.co.uk/1s/2021/07/29/22/46066551-9840027-image-a-12_1627594671403.jpg)
The company's shares dropped by nearly 8.4 percent in their trading debut Thursday
'I would be urging investors to stay away,' Hugh Tallents, a senior partner at management consulting firm cg42 told MarketWatch. 'There is an extreme amount of emotion around this stock.'
Robinhood's share value is now around $30 billion, Bloomberg reported - but that's short of the $36 billion the company could have gotten if it would have traded at the top end of what had been expected.
The company has grown explosively since its 2013 founding, with an estimated 22.5 million funded accounts, after it did away with trading fees and made investing easier and even fun to do with its mobile app.
More than half its customers are first-time investors, giving them more ability to keep up with the stock-holding, wealthier households that had been pulling away for years.
But Robinhood has also drawn heaps of criticism from some of its users as well as regulators, with a lengthening list of regulatory settlements.
Critics say Robinhood encourages unsophisticated investors to make trades too often that may be too risky.
![The no-fee trading helped spark a revolution in the stock market and led to huge spikes in 'meme' stocks, including GameStop. Many experienced investors said these were illogical](https://i.dailymail.co.uk/1s/2021/07/29/22/46066495-9840027-image-a-13_1627594713893.jpg)
The no-fee trading helped spark a revolution in the stock market and led to huge spikes in 'meme' stocks, including GameStop. Many experienced investors said these were illogical
![Reddit forums helped provide the gas for the 'meme' stock phenomenon, which sent shares of GameStop, AMC Theaters and other companies sharply higher; many used Robinhood to trade](https://i.dailymail.co.uk/1s/2021/07/29/22/46066497-9840027-image-a-14_1627594721450.jpg)
Reddit forums helped provide the gas for the 'meme' stock phenomenon, which sent shares of GameStop, AMC Theaters and other companies sharply higher; many used Robinhood to trade
Some users, meanwhile, are still angry at Robinhood after it and other brokers temporarily locked them out of trading GameStop shares earlier this year, when hordes of smaller-pocketed investors were pushing the stock up in part to spite the monied elite on Wall Street.
Companies typically see a big jump on the first day their stock trades. So far this year, a busy one for IPOs, the average debut has returned 34% on day one from its offer price, according to Renaissance Capital.
But with so much interest in the stock among smaller-pocketed investors, experts said the stock was likely to be more volatile. Such investors have the reputation of selling their shares more quickly than big professional investors.
Some IPO investors stayed on the sidelines, citing concerns over its frothy valuation, the risk of regulators cracking down on Robinhood's business, and even lingering anger with the company's imposition of trading curbs when the meme stock trading frenzy flared up at the end of January.
In an unusual move, Robinhood had said it would reserve between 20% and 35% of its shares for its users.
Many IPOs benefit from excluding retail investors, who end up fueling a first-day trading pop by snapping up shares in the open market.
By letting many retail investors under the IPO tent, Robinhood made it less likely that investors would see big gains on the first day.
![Co-founder Vlad Tenev outside the New York Stock Exchange is now worth $2.4 billion on paper, Bloomberg reported, after the initial public offering of Robinhood](https://i.dailymail.co.uk/1s/2021/07/29/22/46066235-9840027-image-a-15_1627594887124.jpg)
Co-founder Vlad Tenev outside the New York Stock Exchange is now worth $2.4 billion on paper, Bloomberg reported, after the initial public offering of Robinhood
![Vlad Tenev, in the foreground in the blue suit, and Baiju Bhatt, in the background in the seafoam-colored suit, are co-founders of Robinhood. They're both now billionaires on paper](https://i.dailymail.co.uk/1s/2021/07/29/22/46066249-9840027-image-a-17_1627594954791.jpg)
Vlad Tenev, in the foreground in the blue suit, and Baiju Bhatt, in the background in the seafoam-colored suit, are co-founders of Robinhood. They're both now billionaires on paper
'The market believes that institutional investors will hold on for a longer time, and retail investors are more likely to flip,' said Reena Aggarwal, professor of finance at Georgetown University.
Robinhood shares closed at $34.82 on Thursday afternoon, after trading as low as $33.35. They priced at $38 in the IPO.
The company was founded in 2013 by Stanford University roommates Vlad Tenev and Baiju Bhatt. The two will hold a majority of the voting power, with Bhatt keeping around 39% of the outstanding stock and Tenev about 26.2%.
Tenev told Bloomberg Television on Thursday that it was a 'surreal moment' just before shares began trading on the Nasdaq market.
'We're not thinking about anything that happens in the market - especially in the short-term,' he claimed.
With the IPO, both Tenev and Bhatt are now billionaires, at least when it comes to their paper holdings: The Bloomberg Billionaires Index valued Tenev's holdings at $2.4 billion and Bhatt's at $2.8 billion.
Tenev told the Associated Press that the company wants to be 'the single money app - the most trusted and culturally relevant money app worldwide.'
'So, everything that you use your money for, you should be able to do through Robinhood,' he said. Among them, he said, were direct deposits of paychecks and paying bills online.
He also pushed back on criticism that Robinhood is making the stock market a casino by encouraging its customers to trade more often.
'I think it´s a big, big mischaracterization because if you look at it, the stock market has been one of the greatest wealth creation tools,' he said. 'We should be encouraging access to it and not denigrating people that are able to use it. So in a sense, you're hearing when wealthier customers are engaging in the stock market, it's investing. But when the rest of us are accessing the stock market, it's gambling.'
Robinhood enraged some investors and U.S. lawmakers this year when it restricted trading in some popular stocks following a 10-fold rise in deposit requirements at its clearinghouse. It has been at the center of many regulatory probes.
The company disclosed this week that it has received inquiries from U.S. regulators looking into whether its employees traded shares of GameStop and AMC Entertainment Holdings, Inc before the trading curbs were placed at the end of January.
In June, Robinhood agreed to pay nearly $70 million to settle an investigation by Wall Street's own regulator, the Financial Industry Regulatory Authority, for 'systemic' failures, including systems outages, providing 'false or misleading' information, and weak options trading controls.
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