Robinhood shares sink 28% after early investors file to sell stock

Sellers are a group of investors who took part in a $3.55bn convertible debt sale in February

Robinhood Markets tumbled on Thursday after early investors filed to sell nearly 100 million of their Class A common shares less than a week after its initial public offering.

The trading platform’s stock sank 28 per cent to $50.97 as investors proposed to sell up to 97.88 million of shares over time.

None of the proceeds will be received by Robinhood, with the selling stockholders getting all of the funds from the sales, according to a filing with the US Securities and Exchange Commission.

The listed sellers are a group of investors who in February took part in a $3.55 billion convertible debt sale by Robinhood as a frenzied surge in meme stocks left it facing a potentially massive margin call.

Thursday’s filing allows for those involved in the first tranche of convertible debt to sell half their shares, while the remaining 50 per cent need to be held until August 25.

The largest of those holders, Venture capital firm New Enterprise Associates, could trim its roughly 10 per cent stake by about 3.9 per cent or 2.9 million shares. Other sellers named in the filing include entities affiliated with Andreessen Horowitz, Iconiq Capital and Ribbit Capital.

Such early selling by major investors highlights another unusual quirk of Robinhood’s IPO. While most public offerings these days are accompanied by a six-month lock-up period where insiders are barred from touching their holdings, employees and directors at Robinhood were able to sell a portion of their shares as soon as the first day of trading.

The latest filing comes just a day after shares in the zero-fee trading platform soared 50 per cent as a flood of retail traders joined larger investors, such as Cathie Wood’s flagship ARK Innovation exchange-traded fund, in buying the stock.

Individual investors were a key driver of Wednesday’s volatility with Robinhood being the fourth most traded stock on the day across retail trading platforms, according to data compiled by Vanda Securities. Retail traders exchanged $467 million worth of shares with $50.5m in net purchases, the data show.

The spike in interest from individual investors despite Robinhood’s underwhelming IPO is a departure from companies like Coinbase Global or DiDi Chuxing, which saw huge retail demand that quickly waned, according to Vanda’s Ben Onatibia. “After a poor listing, retail demand is surging, something extremely rare with IPOs,” he said in an email.

Some analysts are staying cautious. “We cannot in good faith recommend investors get involved in HOOD on either the long or short side,” Wolfe Research analyst Steve Chubak wrote in a note, initiating coverage on Robinhood with a hold-equivalent rating and a share price target of $45.

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After a poor listing, retail demand is surging, something extremely rare with IPOs
Ben Onatibia, Vanda Securities

Shares fell more than than 8 per cent on their first day of trading last week after Robinhood priced its IPO at the low end of its expected range. They then went on to rally for four straight days, including Wednesday’s surge that at one point reached as much as 82 per cent and ballooned Robinhood’s market capitalisation to a peak of $65bn.

Updated: August 6th 2021, 8:20 AM
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