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Robinhood recovers from weeks of customer problems and a public Congressional grilling over the GameStop controversy. Even so, user growth, brand awareness, and trading app rating seem stronger than ever.
The demand for Robinhood shares in private markets is increasing. The start-up likely benefited from headlines and mentions from politicians and celebrities. JMP Securities estimates that the app gained 3 million users in the last month alone.
"From a brand awareness perspective, who doesn't know who Robinhood is?" Greg Martin of Rainmaker Securities told CNBC. "Despite some positive and negative press, everyone in the world knows who Robinhood is. You couldn't have better free publicity."
Robinhood, the app that pioneered zero commission trading, is still considered the primary gateway for young investors to gain access to the markets. It is expected to go public in 2021 as there is strong demand for fintech stocks like Square, PayPal and Affirm.
Pre-IPO bids for Robinhood stock rose during the GameStop mania last month, according to Rainmaker, who finances stock funding for pre-IPO companies. Demand also rose after Robinhood CEO Vlad Tenev appeared before Congress last week. This is currently the most highly bidding stock Rainmaker is seeing in the secondary market right now. The increased demand is a vote of confidence for Tenev, which is in a PR and regulatory crisis.
However, these bids are not guaranteed. However, they are usually a good indicator of investor interest in companies at a given price. One of the most recent bids this week was on Robinhood stock at $ 52 per share, down from around $ 15 in September.
Private market valuations are often opaque. They are based on the value of the equity someone invests as a percentage of the company and are difficult to calculate without knowing a startup's assets and stocks outstanding. Because of this spike in asking prices, an investor told CNBC that Robinhood's valuation could be as high as $ 40 billion – more than three times its last publicly disclosed figure.
"With the amount of capital they have now, I expect the company will be the dominant broker going forward and I think the market will recognize that," said Martin. "The valuation could be very high in the near future, which is a good sign of an IPO."
Robinhood declined to comment on the timing and evaluation of the IPO.
The Silicon Valley startup found itself in the middle of a firestorm last month amid the brief bottleneck at GameStop, which was in part driven by Reddit-obsessed private investors. At the height of GameStop's rise, the millennial trading app restricted trading in certain securities due to increased capital requirements from Robinhood's clearing houses.
Demand from Silicon Valley
Robinhood's decision to restrict trading has been outraged by online retailers. Nevertheless, private investors flocked to support the company. Some venture capitalists, responsible for the $ 3.4 billion emergency capital, cited the app's ability to add more clients amid the trade turmoil.
Three Robinhood private investors said there was "strong demand" for part of the company despite sparking a public relations and regulatory crisis.
The financing took place in the form of convertible bonds. This will convert into stocks when the brokerage goes public and these investors get a 30% discount off the market price. A venture capitalist told CNBC that he and other investors believed the company would go public relatively soon and that the debt round was an opportunity to "get in at a discount."
JMP Securities' Devin Ryan estimates Robinood's total accounts are now closer to 23 million, including the 3 million gained in January and 10 million users added in 2020 when home investments boomed during the pandemic.
At the congressional hearing last week, Robinhood CEO Vlad Tenev said the company had delivered more than $ 35 billion in realized profits to investors, implying strong growth in client and client assets. The average account size is around $ 5,000, according to the company.
Vlad Tenev, Robinhood
Tenev, who co-founded Robinhood eight years ago, spent more than five hours answering questions from members of the House Financial Services Committee last Thursday. The Robinhood boss was spirited in his responses and calmly stated that the billions in cash injections were intended to prevent a liquidity crisis.
An investor who asked not to be named because the corporate strategy was private said Tenev's testimony "went well" although it was "sometimes painful to watch" as Robinhood's business model differs from Washington's.
"Robinhood emerged from this – there was certainly a success for the company, but we are determined to work on it."
Another investor told CNBC that Robinood supporters generally "feel pretty good" about Tenev's performance. After 48 hours of the GameStop saga, he said it was clear the Twitter backlash was "insular" as the company continued to add hundreds of thousands of new accounts this week.
"The growth has been great despite Robinhood taking the brunt of the press and congressional questions. Vlad has done a great job and as well as he could have done given the situation," he said. "He was at the interface to potentially piss off regulators, customers and competitors."
Some analysts believe that new regulation could hamper the legal, but controversial, payment method for the flow of orders and hurt prospects for the IPO. However, Robinhood investors say its value lies in user engagement, not the revenue model. Investors pointed to his position at the top of the app store despite preventing customers from trading certain stocks.
"It's the fastest growing consumer app and has better exposure than social media," another investor told CNBC. "The majority of these new dealers will not be trading with GameStop."
Robinhood users … invest in Robinhood?
Some critics, notably Dave Portnoy, CEO of Barstool, believe that the Robinhood brand, built on the democratization of investment, will not survive the GameStop trade bans.
However, many expect strong retail demand for Robinhood's supply as it allows rookie investors to access the exchange smoothly.
Robinhood could enter the public markets through a direct listing or through a dedicated acquisition company, people familiar with the private deals told Bloomberg News. The company has also reportedly considered giving investors the opportunity to invest directly in Robinhood's initial public offering on its platform.
Airbnb followed a similar playbook by offering shares to its hosts, and the shares traded due to the involvement of retailers in the IPO. Snowflake was another IPO that soared on day one. Some speculated that people were reducing the retailer's thirst for the name.
Looking ahead to a public debut, Robinhood is now talking about the future of the investment boom it sparked. Some analysts have circulated the idea of Robinhood's ability to get more banking products or even mortgages on the Millennial App.
Tenev said more brokerage firms could bring stock trading and social media together on the same platform in the future, he told Andrew Ross Sorkin at the Dealbook DC Policy conference this week. The brokerage firms SoFi and Public already offer this function.
What happened to GameStop, Tenev called it a "5 sigma" event – which is a 1 in 3.5 million chance. Robinhood should now have enough capital to meet regulatory requirements related to frenzied trading, he said.
GameStop volatility doesn't seem to be going away, however. Investors flocked back to brick and mortar retailers on Wednesday, sending stocks up more than 100%.
– with reports from CNBC's Crystal Mercedes.