Robinhood (NASDAQ:HOOD), the favored retail brokerage platform, appears to be within the strategy of flipping all the narrative round its subpar IPO final week, with good points of over 23 p.c relative to the opening worth of $38 on the day of the inventory’s flotation.
As a refresher, Robinhood had suffered the worst IPO on document among the many 51 US companies that had managed to boost related quantities of money through a public flotation. To wit, the inventory had fallen 8.4 p.c under the IPO worth on its first day of buying and selling.
Nevertheless, Cathie Wooden’s ARK Make investments fund appears to have supplied a well timed lifeline to Robinhood, with the fund persevering with so as to add extra shares in latest days, thereby offering not solely a relentless supply of bids but additionally an important psychological anchor. As an illustration, the inventory recorded good points of over 24 p.c yesterday. Even in right this moment’s pre-market buying and selling session, Robinhood shares are up one other 6 p.c.
Cumulatively, ARK Make investments now owns 6.556 million Robinhood shares:
In one other tawdry episode associated to Robinhood’s flop IPO, the corporate’s CEO Vlad Tenev dumped 7.2 million shares, netting round $275 million. Nevertheless, in an episode that reeked of hypocrisy, Robinhood actively discouraged retail merchants from promoting IPO shares.
“We received’t stop you from promoting shares you get by the IPO Entry program.”
The corporate then went on to notice on its website:
“Nevertheless, should you promote IPO shares inside 30 days of the IPO, it’s thought of “flipping” and also you’ll be restricted from collaborating in IPOs for 60 days.”
Readers would keep in mind that Robinhood acquired numerous flak from retail buyers earlier this 12 months relating to the high-handed method by which the agency handled the GameStop (NYSE:GME) saga. To wit, WallStreetBets merchants recognized that GameStop shares have been closely shorted. In reality, the brief curiosity within the inventory – the cumulative variety of shares which have been offered brief and expressed as a share of the overall variety of shares out there for buying and selling – hovered round 140 p.c. WallStreetBets merchants resolved to purchase not solely GameStop shares but additionally these of different closely shorted firms, together with AMC Leisure (NYSE:AMC), in order to unleash a brief squeeze and enhance the costs of those meme shares by orders of magnitude as a way of punishing the aggressive shorting tactic employed by a lot of hedge funds.
This battle, nonetheless, largely abated as soon as retail brokers corresponding to Robinhood began proscribing the holdings of their shoppers in these extremely risky shares to a single share. Keep in mind that Robinhood derives nearly all of its income from establishments corresponding to Citadel that pay for the order movement of retail shoppers. Nevertheless, amid the shopping for frenzy precipitated by WallStreetBets in only a handful of shares, Robinhood had skilled a large shortfall of income because the breadth of the order movement decreased. Concurrently, the Depository Belief & Clearing Company (DTCC) is rumored to have jacked up the collateral requirement for Robinhood within the face of this rising danger surroundings. The mix of those two occasions probably pressured the retail brokerage home to attempt to curtail its danger publicity by capping the holdings of its shoppers.
Curiously, Robinhood lately disclosed that crypto buying and selling supplied a major contribution to the agency’s top-line metric. As per web page 79 of the Form S-1/A filed by Robinhood with the US SEC, the buying and selling of cryptocurrencies generated 17 p.c of the overall income in Q1 2022. Primarily based on a top-line determine of $522 million for the quarter, cryptocurrencies have been chargeable for producing $88.74 million in income for the brokerage home throughout the interval. Crucially, Dogecoin trades have been chargeable for 34 p.c ($30.17 million) of all cryptocurrency income!
After spending extra time on the $HOOD S1, probably the most attention-grabbing metric is their blended income on property of ~2-2.5% (10x $SCHW at 0.27%).
That is because of the income combine (choices are 38% of income & crypto 17%, regardless of being 16% of AuC mixed). https://t.co/miWEmG3LzS pic.twitter.com/varLDVURss
— John Road Capital (@JohnStCapital) July 2, 2022
This can be a shocking improvement. Readers would keep in mind that the Dogecoin mania reached a fever pitch solely within the second quarter of 2022, notably throughout the months of April and Might. For many of the first quarter, GameStop, AMC Leisure, and different meme shares had continued to dominate the net chatter, and therefore retail investor sentiment.
Which means that the numbers for Q2 2022 could be really astronomical in terms of Dogecoin’s contribution to Robinhood’s general income. Sadly, these figures are usually not but publicly out there. Nonetheless, this improvement demonstrates the power of Dogecoin’s bullish narrative that had taken maintain of a lot of the retail funding neighborhood in Q2.
So far as Robinhood’s inventory worth prospects are involved, the scenario stays fairly murky. The brokerage home has completely antagonized a big portion of the retail neighborhood, with the sentiment round this inventory having taken a very nasty dip on the WallStreetBets Reddit discussion board. On this scenario, a sustainable turnaround stays fairly troublesome except the brokerage home takes radical steps to win again the boldness of its largest income stream – the neighborhood of retail merchants and buyers whose order movement Robinhood sells to market makers corresponding to Citadel.