Robinhood’s Shares Fall in Public Trading Debut

SAN FRANCISCO — Robinhood helped propel a “meme stock” frenzy earlier this year that sent stock prices of small companies on a roller-coaster ride. On Thursday, its own initial public offering was far more subdued.

Shares in the stock-trading start-up opened trading at $38, the same price as its offering, but then fell as much as 11 percent. Its offering price, which valued the company at $31.7 billion and was at the bottom of its proposed range, showed that investors may be hesitant to buy into the company’s grand mission of upending Wall Street.

Robinhood’s free stock-trading service has helped create the conditions for wild trading gyrations in meme stocks, driven by investors hyping their trades on social media. Its offering is among the largest in a frenzied year for public market debuts, though few of the companies have had the profile and level of controversy — including outages, fines, Congressional hearings, protests and memes — as Robinhood.

But its trading debut showed there may be limits to investors’ euphoria for I.P.O.s, even amid a blockbuster year for them. There were 213 I.P.O.s in the first six months of the year, more than any full year for the last decade, according to Renaissance Capital, which tracks I.P.O.s. This week alone was set to have 25 companies go public in the United States, making it the busiest in two decades. Instacart, the grocery delivery company, and Nextdoor, the social network, are among those expected to go public later this year.

The unpredictability of initial trading was exacerbated by an unusual move by Robinhood, which has a mission of democratizing finance. The company decided to sell as much as a third of its offering to retail traders via its own app. Most other companies that have gone public have not done this or have offered only a small amount of shares to retail investors.

In the end, though, only around 20 percent of the offering was sold to retail customers, according to a person with knowledge of the offering, indicating less interest than expected.

Vlad Tenev, Robinhood’s chief executive and co-founder, said in an interview that the I.P.O. was a “celebration of the individual investor in America.” He added, “We’re just mindful that this is an important moment for our customers as well.”

Robinhood’s tepid public debut raises questions for the Silicon Valley company after a rocky year.

Early in the pandemic, as the stock market crashed, Robinhood suffered outages at crucial moments. As the year went on and the app became more popular, commentators raised questions about the level of risk that traders were taking, especially with highly leveraged options trades.

Other aspects of Robinhood’s app, including confetti explosions and lottery scratch-offs, have drawn comparisons to gambling. One young customer, Alex Kearns, killed himself last year after a misunderstanding over debt in his account. Robinhood has since settled with his family.

In January, stock traders banded together on social media to drive up the share price of meme stocks including GameStop, the gaming retailer, and AMC Entertainment, the movie theater chain.

Robinhood had to halt some trades and raise multiple rounds of emergency funding to cover the collateral needed for its customers’ trades. Mr. Tenev’s cellphone was seized by authorities as part of an investigation into the situation. Robinhood was sued more than 50 times, and Mr. Tenev was summoned to testify in Congress.

In July, Robinhood paid a $70 million fine to the Financial Industry Regulatory Authority for misleading customers and harming them with outages.

The controversies did not seem to hurt Robinhood’s growth. The company added 5 million customers over the last year, bringing its total to 18 million. It more than quadrupled its revenue to $420 million in the first three months of the year, compared with $96 million a year prior. It also posted a loss of $1.4 billion, which it attributed to the emergency debt that it raised as a result of the frenzied GameStop trading in January.

“Robinhood is a growth stock and it has the potential to continue growing, but the market is saying this growth doesn’t come without risk,” said Josh White, a finance professor at Vanderbilt University, said after Robinhood’s shares started trading. “Maybe it’s not a $32 billion stock.”

Mr. Tenev, 34, and Baiju Bhatt, 36, founded Robinhood in 2013 with an eye toward disrupting the entrenched interests of Wall Street. They sought to make stock investing fast and free via their mobile app. Rather than charge a commission on each trade like traditional brokerages, Robinhood sold its customers’ orders to Wall Street firms for a small fee per trade. Eventually, many of Robinhood’s traditional competitors lowered their trading fees to zero.

The company expanded into other areas. It allows people to trade cryptocurrencies, including the joke currency Dogecoin, which accounted for a third of its revenue from crypto trading in the first quarter. It expanded into checking and savings accounts, though that launch was an embarrassment after it claimed the product was backed by a consumer protection group that does not insure such offerings.

More recently Robinhood expanded into I.P.O. offerings, including its own. It also said it would soon launch retirement saving accounts.

Along the way, Robinhood attracted more than $2 billion in venture funding. Its largest investors include New Enterprise Associates and Index Ventures.

In its offering prospectus, Robinhood stated that Mr. Tenev and Mr. Bhatt will each own around 8 percent of Robinhood’s shares after the I.P.O., making their stakes in the company worth around $2 billion each. They own a special class of supervoting shares that gives them control of 65 percent of the voting power over the company.

Robinhood used its I.P.O. to promote itself as a democratizing force in finance. In a defiant letter, its founders said that “finance is now as culturally relevant as music and the arts,” noting that it they were pained by news reports that “lambasted” the next generation of investors.

But in the lead-up to Robinhood’s listing, some traders said they were already plotting to band together to dump the stock as retribution for the trading halt in January.

That simmering frustration did not deter Mr. Tenev and Mr. Bhatt on Thursday. Mr. Tenev said he planned to ignore short-term volatility and focus on Robinhood’s customers and products.

“We can’t control the things that happen in the market,” he said. “It’s a moment in time.”

Lauren Hirsch contributed reporting.