Robinhood Markets Inc., which has disrupted Wall Street with its no-fee trading app, was jeered in its public debut on Thursday, as the stock stumbled below its reference price minutes after the open, and stayed there.
The highly anticipated initial public offering priced overnight at $38 a share, at the bottom of the expected pricing range of between $38 and $42 a share. Robinhood raised a net $1.89 billion in the IPO, after underwriting discounts and commissions. Read more about the IPO pricing.
The initial indication of where the stock might open was at $42.00, 10.5% above the IPO price, but expectations declined steadily as time went on.
first trade was at $38.00 at 12:24 p.m. Eastern for 11.4 million shares, or flat with the IPO price.
It received a brief initial boost, rising to an intraday high of $40.25, before investors quickly backed off. The stock hit an intraday low of $33.35, or 12.2% below the IPO price, before paring losses to be close 8.4% below it at $34.82.
With a total of about 835.7 million shares outstanding after the IPO, the company was ended Thursday valued at just above $29 billion, compared with expectations of up to $35 billion when IPO terms were first set.
Whether investors should rush to buy the stock now that they can is still a matter of debate. There are worries that the retail trading boom that fueled Robinhood’s rapid growth might be fading, the company faces multiple lawsuits over how it restricted trading in some meme stocks in January and there are concerns that fundamentals don’t justify a such a high valuation, but there’s also the upside of a large and younger user base that can be upsold new products.
“I would be urging investors to stay away,” said Hugh Tallents, senior partner at management consulting firm cg42. “There is an extreme amount of emotion around this stock” that Tallents said is clouding the fundamental picture.
Among his biggest concerns is that he believes Robinhood will have to “spend a ton” to bring in new users, keep existing users and to develop new offerings to keep its users engaged.
Meanwhile, James Angel, a professor at Georgetown University’s McDonough School of Business, said that over the longer-term, he is “positive” on the company, given the size of their “very young and active” user base.
“They have a lot of growth opportunities, with a young demographic that is going to get older, wealthier and wiser,” Angel said. “If they play their cards right, they’ll be able to sell them plenty of financial products.
He recommended caution over the short-term, as the stock is likely to remain volatile in the early going given all the uncertainty surrounding what is a fair price for the stock: “Even if market professionals have a pretty good idea, they don’t always get it right.”