Robinhood Markets Inc. dropped below its initial public offering price in its trading debut after failing to win over some of the very retail investors it’s courting for long-term growth.

The online trading platform focused on making investors out of millennials slid as much as 12 per cent in its trading debut Thursday before climbing back closer to -- but still below -- the price in its US$2.1 billion IPO, in which the shares were sold at the bottom of a marketed range.

The shares, which opened at the US$38 offer price, were down 6.6 per cent to US$35.51 at 3:36 p.m. in New York, giving the company a market value of about US$30 billion. Accounting for employee stock options and similar holdings, Robinhood’s fully diluted value closer to US$31 billion, but still short of the more than US$36 billion valuation it would have had at the top end of its price range.

The trading app made famous in this year’s meme stock frenzy had allocated an unusually large portion of its IPO shares to retail stock buyers. It ended up selling around 20 per cent to 25 per cent of the deal to such individual investors, after earlier setting aside as much as 35 per cent of the offering for them, according to a person with knowledge of the matter.

The IPO was also greeted by postings on Reddit, the platform that helped fuel trading of stocks such as GameStop Corp. and AMC Entertainment Holdings Inc., urging would-be investors to simply avoid Robinhood’s IPO.

“It looks like nobody wants to touch it,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors. Robinhood sold 55 million shares Wednesday for US$38 each after marketing them for US$38 to US$42.


‘Hole’ in the floor

“Without any bids, there’s no floor beyond what the underwriters are willing to do, but when you release a third to retail and they say ‘No thanks’ you put a hole in that floor,” Gokhman said. “To be honest, when they priced at US$38, I thought a flop was likely, but I didn’t expect it to be this bad.”

The failure to deliver a first-day pop craved by IPO investors may signal doubt about Robinhood’s promise to “democratize” and expand access to capital markets.

Robinhood debuted in a crowded but diminished week in the capital markets, as a record-setting year of U.S. listings is losing momentum. Some 33 companies including blank-check firms had been slated to raise more than US$11.6 billion on U.S. exchanges, according to data compiled by Bloomberg.


IPOs pulled

The second-biggest IPO of the bunch, what was planned to be a listing of up to US$1.8 billion by car-battery maker Clarios International Inc., was postponed indefinitely. Preston Hollow Community Capital, a provider of specialized financing solutions, also delayed its IPO, which had been set for Thursday, Bloomberg News reported.

An IPO by fruit and vegetable producer and distributor Dole Plc, earlier planned for Tuesday, was cut back to a target of up to US$515 million and moved to later Thursday.

Five of of the six U.S. IPOs that raised US$2 billion or more closed above their offer prices on the first trading day, Bloomberg’s data shows. Only three are trading above their offer price currently.

Another potential wrinkle that increased the volatility of Robinhood’s listing is that it allowed insiders to sell up to 15 per cent of their holdings right away, instead of locking them up for the first six months.


‘Surreal moment’

Robinhood co-founder and Chief Executive Officer Vlad Tenev said in a Bloomberg television interview that he’s striving for a “large portion” of the company’s customers to be long-term investors.

“It’s a surreal moment,” Tenev, 34, said shortly before Robinhood shares began trading on Nasdaq. “We’re not thinking about anything that happens in the market, especially in the short term.”

Tenev and co-founder Baiju Bhatt officially became billionaires with the IPO. Tenev’s holdings were valued at US$2.4 billion, according to the Bloomberg Billionaires Index. Bhatt, who shared the CEO duties until last year, is worth US$2.8 billion.

Robinhood’s appeal caught on during the coronavirus pandemic as homebound young people turned to online trading to pass the time and make money.

The company’s revenue surged during the first quarter, exceeding US$522 million compared with US$128 million for the same period last year, according to its filings with the U.S. Securities and Exchange Commission. Its losses rose astronomically, though, from US$53 million for the three months ended March 31, 2020, to US$1.44 billion in the most recent quarter.


Increased scrutiny

That loss was mainly tied to convertible notes and liabilities from its emergency fundraising, when it was rushing to deal with the volatility of trading in GameStop and the other stocks that became popular on Reddit forums and trading apps. Robinhood gathered more than US$3 billion from investors over a few days

The app’ increased popularity has led to scrutiny from politicians and regulators, who are focused on the so-called gamification of trading and the company’s role at the center of the meme-stock phenomenon.

The Financial Industry Regulatory Authority imposed a nearly US$70 million fine on Robinhood on Wednesday, a record for the watchdog. Finra alleged Robinhood misled its customers about margin trading, and lapsed in its oversight of technology and approvals for options traders. Robinhood neither admitted nor denied the claims.

Robinhood’s offering was led by Goldman Sachs Group Inc. and JPMorgan Chase & Co. The shares are trading on the Nasdaq Stock Market under the symbol HOOD.