Customers of the free stock trading app Robinhood have suffered from a variety of outages and trading halts over the past year. But last week they suffered a new, if short-lived, indignity as the brokerage app popular with millennials allowed its users to buy shares of its initial public stock offering, only to see the shares sink 8 percent on the first day of trading.
That made the Silicon Valley company’s stock market debut doubly unusual. Typically, it is difficult for ordinary retail investors to buy shares of an IPO. And almost all IPO shares rise on their first day of trading.
The deal ranked as the third-worst debut of the year among companies that raised at least $1 billion in an IPO, according to Dealogic. The average IPO has gained 38 percent on its first day this year.
But the stock has already bounced back, and buyers who held on for a few days now have a profit on their investment. Robinhood’s shares closed at $46.80 on Tuesday, eliminating the loss and constituting a gain of 23 percent over the IPO price of $38.
A few other tech companies that went public this year and suffered first day downturns have yet to regain their losses. Mobile game software developer Applovin went public in April, dropped 19 percent, and has not recovered any of the loss yet. And online insurance startup Oscar Health is trading at less than half its March IPO price after an 11 percent first-day decline.
Despite the rocky start, some Boston-area Robinhood users who bought the IPO stock said they’d stick with it. Various successful companies including Facebook and Moderna had poor debuts but later recovered. Robinhood had almost 500,000 users in Massachusetts at the end of 2020, according to Secretary of State William F. Galvin’s office.
“There’s been a gap in our financial system for years, which the founders of Robinhood have truly disrupted,” Northeastern college student Caio Almeida said.
After using the Robinhood app to trade stocks for about three years, starting when he was in high school, Almeida bought shares of the IPO and isn’t too worried about the early struggles. “I believe that Robinhood has the potential to become the ‘Amazon of financial services,’ ” he added.
Software engineer Kishore Sundar, 29, feels similarly. He was attracted to Robinhood in 2018 when it was the only free stock trading app. Now most brokerages, including Fidelity, Vanguard, and Etrade, have followed suit.
“The retail investor phenomenon is here to stay, which will hopefully open up, as it already has, more options,” Sundar said.
It’s not all young people trading on Robinhood and buying its IPO shares. Boston consultant and podcaster Chris Brogan, 51, said he’s been trading on the app for more than a year and has become a true believer.
“It’s simple, slick, and just facilitates transactions so much easier than legacy platforms made by more pre-Internet peers,” Brogan said.
He bought shares in the IPO and said he would not sell just because of the initial loss. “I bought a fistful of shares on the IPO and got to watch them go down, just down,” he said last week.
Robinhood raised $2.1 billion on July 28 by selling 55 million shares for $38 each, trading under the ticker symbol HOOD. Most of the shares went to big investors like mutual funds and hedge funds. But the company said just over 300,000 of its own customers also bought shares.
Before the deal was priced, Robinhood said it was aiming to place 20 percent to 35 percent of the new shares with its own customers, but it has not disclosed how many ended up among those investors.
The company’s stock market debut may have reflected its problems encountered over the past year. Even as it grew quickly during COVID, doubling its user base in 2020, wild trading of so-called meme stocks like GameStop and AMC Theaters threatened to overwhelm its trading capacity. In January, it shocked customers by imposing a trading freeze on some of the most volatile stocks, including GameStop and AMC.
Last week, Robinhood disclosed that federal authorities are investigating whether some of its employees sold shares of those stocks just ahead of the trading halt. Robinhood also paid a $70 million fine in June over charges that it provided misleading information to customers.
Those and other issues convinced some former customers to avoid the IPO, and the company’s trading platform.
Anthony Giello, 38, used to trade stocks and cryptocurrencies on Robinhood. But he lost faith when the company didn’t add features it had touted and imposed a high minimum balance on some of his stock trading.
“I stuck around for a little while waiting for Robinhood to do what they promised,” he said. “When they didn’t, I cashed out at the top and moved to another platform that has better service.”
Giello said he didn’t trade meme stocks, but he was still appalled at the trading halt in January.
“They’re just not what ‘Robinhood’ really represents,” he said. “They’re more like the Sheriff of Nottingham in Robinhood’s clothes.”