Heading into the start of 2021, Robinhood was expected to be one of the most successful initial public offerings of the year. Robinhood was widely hyped and praised by investors for helping democratize Wall Street trading. What could go wrong? A lot, as it turns out.
Even though it has been a record year for IPOs, shares of Robinhood have plunged since the company’s late July stock market debut.
The online discount brokerage’s stock is now trading 40% below its offering price of $38 a share and nearly 75% off the all-time high of $85 that Robinhood hit in early August just a few days after it began trading.
Robinhood incurred the wrath of many traders earlier this year after the company put restrictions on purchases of GameStop (GME), a stock popular with many on Reddit.
The move was viewed by many of the so-called “apes” of social media as a way for Robinhood to help hedge funds that were betting against GameStop.
Robinhood also briefly limited the amount of shares investors could buy in AMC (AMC) and other meme stocks that were being heavily shorted by big institutional investors.
The company then disappointed investors with its first post-IPO earnings report, posting a much bigger loss than expected despite the fact that trading volume soared for bitcoin, ethereum and meme cryptocurrency dogecoin.
Is the worst finally over for Robinhood?
Robinhood stock hit a new all-time low Monday before rebounding a bit along with the broader market as Omicron Covid-19 variant fears have started to fade on Wall Street.
If there is any solace for Robinhood’s investors, who must be feeling like the poor of Sherwood Forest since the IPO, it’s that Robinhood’s stock performance is eerily reminiscent of Facebook’s (FB) (Sorry. We meant Meta’s) big drop following the social networking giant’s IPO in 2012.
Facebook shares plummeted shortly after their IPO, which coincidentally also priced at $38, losing more than half their value in just a few months.
Although Facebook shares languished for about a year after the IPO, the stock eventually became a Wall Street darling. The company, despite continued controversies, is now worth nearly $1 trillion. Shares have soared more than 750% from their IPO price.
That’s not to say that Robinhood is destined for similar success as Meta.
There is a lot more competition for Robinhood, both from upstarts like Webull and eToro as well as established financial giants such as Fidelity, Morgan Stanley (MS) (which now owns E-Trade) and Charles Schwab (SCHW), which recently bought TD Ameritrade.
Wall Street analysts who cover Robinhood remain cautiously optimistic about the company’s prospects.
Revenue is expected to surge more than 20% in 2022 from this year, to about $2.2 billion. But the company is expected to post another loss next year, albeit a smaller one than in 2021.
Six analysts have Robinhood rated a “buy.” Seven have a more lukewarm “hold” on the stock while one analyst even has a “sell” rating on it.
Still, the consensus price target for Robinhood is nearly $46 a share – double its current levels and about 20% above the IPO price.
