Markets

Why Robinhood Stock Jumped Then Dropped in Its IPO Today

What happened

The brokerage that was heavily involved in the original meme-stock trading frenzy earlier this year is itself trading publicly today. Robinhood Markets (NASDAQ: HOOD), as it is officially named in its public debut, made headlines when it was overwhelmed with trading interest in names like GameStop (NYSE: GME) and AMC Entertainment (NYSE: AMC), and was forced to halt buying in some stocks in late January. Today, investors' ability to buy shares in the retail broker itself initially sent shares up 6% before reversing course. As of 12:45 p.m. EDT, Robinhood shares were trading 9% below its opening price.

So what

The initial public offering (IPO) is raising about $2.1 billion for the online broker that is used by many retail investors. Robinhood Co-founder and CEO Vlad Tenev, in an interview with CNBC, said the IPO had a "very large retail allocation." The financial network reports that Robinhood reserved about 25% of shares for retail investors on its platform. But some retail traders are still angry with Robinhood over trading restrictions imposed on some meme stocks during the initial frenzy in January 2021. There are several on social media today advising people to avoid buying shares in the company or even to short shares. That may help explain why shares are trading lower.

A group of people happy that cash is falling from the sky.

Image source: Getty Images.

Now what

Robinhood has distinguished itself from traditional brokers with its user-friendly app and large number of younger retail traders. The platform derives 38% of its revenue from options, 26% from equities, and 17% from cryptocurrency trading, according to a Securities Exchange Commission (SEC) filing.

Robinhood states that its mission is to "democratize finance for all." It reports having 18 million net cumulative funded accounts as of March 31, 2021 and says more than half its customers are first-time investors. Based on today's stock action, some of those retail investors may be happier using the site than investing in it.

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Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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