SAN FRANCISCO – Robinhood, the scholarship app that has gained popularity and notoriety during the pandemic, revealed skyrocketing revenues and a loss of more than $ 1.4 billion in the first three months of this year, as it took a key step on Thursday towards one of the most anticipated initial public offerings of the year.
Robinhood made the revelations in an offer prospectus a day after he said he would pay a fine of $ 70 million – the biggest ever imposed by the Financial Industry Regulatory Authority, or FINRA – to mislead customers and hurt them with outages.
His offering, heading into a bubbling period and unpredictable stock market, will test whether investors will continue to embrace fast-growing tech start-ups that arrive on Wall Street with patchy earnings and a lot of baggage.
In January, Robinhood became the latest in a series of Silicon Valley companies to gain national attention for less than ideal reasons when it restricted some deals after a swarm of investors made magnify the values of so called meme actions like GameStop, the video game retailer.
The move, which Robinhood said it had to make to meet capital needs, outraged many of its users, drew close to 50 chases and led to protests outside the company’s headquarters in Menlo Park, California. Its leaders were summoned by Congress for an insult in a hearing a month later.
But Robinhood has emerged from the chaos with greater name recognition and millions of additional users.
The company has long described itself as an egalitarian force that brings stock trading to new types of investors. He doesn’t charge for transactions, but earns money by selling customer orders to companies on Wall Street who pay him a small fee for each transaction.
The prospectus offered the first comprehensive overview of Robinhood’s financial performance. Nearly 18 million people now rely on its app to buy and sell stocks and cryptocurrencies, with $ 81 billion in assets in its care.
The company’s revenue was $ 420 million in the first three months of the year, a jump of more than four times from $ 96 million a year earlier. He lost $ 1.4 billion during that time, a much larger loss than a loss of $ 53 million a year ago. The loss stems from the $ 3.5 billion debt Robinhood took on in February.
In 2020, the company made a profit of $ 7 million.
“We are all investors,” the prospectus said. “We are creating a modern financial services platform for everyone. “
The company was founded by Vlad tenev and Baiju Bhatt in 2013. Inspired by the anti-establishment philosophy of Occupy Wall Street movement, they said, they set out to make commerce easier for millennials through an app.
Unlike traditional brokerages, Robinhood’s app emphasized quick and easy trades and used a fun element, with confetti bursts for trades, lottery scratch features, and notifications for trades. earnings calls.
The innovations attracted many millennials to the stock market for the first time, but market watchers said the app encouraged a gambling-like approach to investing. Studies show that active trading Usually leads to worse results for investors. In March, Robinhood announced it would remove confetti from its app.
Still, the business turned out to be disruptive. In 2019, competing stock trading services including Charles Schwab, TD Ameritrade and E-Trade reduced their fees to zero.
As users flocked to Robinhood, venture capitalists followed suit. The company has raised $ 5.6 billion in funding valuing it at $ 11.9 billion, according to Pitchbook. Its main shareholders are Ribbit Capital, Index Ventures, New Enterprise Associates and DST Global.
Robinhood’s egalitarian spirit did not protect the company from attack during the GameStop crash. Clients accused him of siding with the big Wall Street institutions at the expense of ordinary people after halting certain transactions.
The company’s shareholders, however, stuck to it. In one week he lifted two sets of emergency funding totaling $ 4.4 billion to meet loan needs for stock market transactions and continue to conduct transactions.
Robinhood caught the attention of regulators long before the GameStop frenzy grabbed national spotlight. In 2018, it announced it would offer checking and savings accounts, saying it was already backed by the Securities Investor Protection Corporation, a consumer protection group that oversees brokerage houses. After the group said it didn’t insure checking and savings accounts, Robinhood backed down and launched the service a year later.
Last year Robinhood was fined $ 65 million by the Securities and Exchange Commission for accuses of having misled customers on how he makes money. And in recent months, Massachusetts has stepped up the fight against the app, withdrawing its license in the state, echoing other complaints that its app tricks inexperienced investors into risky bets.
The company has also experienced outages at key times, including in March of last year, when the pandemic hit and inventories plummeted.
In its prospectus, Robinhood described regulatory review as a risk factor.
Robinhood also said it plans to allow its customers to pre-purchase its offering at the listing price. This year, the company began allowing users to purchase listings from Clear Secure, the airport security company, and FIGS, a medical scrubs start-up.
The company will list its shares on the Nasdaq. Its offering will be led by Goldman Sachs.