Shares of Robinhood Markets, Inc. - the American financial services company offering commission-free trades of stocks and exchange-traded funds via a mobile application - should rebound Friday in the U.S. despite an 8.37% dip on debut Thursday.
One of those sticking with Robinhood is Cathie Wood's ARK Innovation exchange-traded fund. It snapped up almost 1.3 million shares of the company Thursday, according to its daily trading report. At Robinhood's closing price of $34.82 that gave the fund a more than $45 million stake.
And the market believes institutional investors will cling on for a longer time and "retail investors are more likely to flip," Reena Aggarwal, professor of finance at Georgetown University, told Reuters.
Even after pricing the offering at the low end of its range, Robinhood ended its first day down 8.37% from its offering price - the worst performance for a U.S. debut of its size, according to data compiled by Bloomberg.
But overnight trading suggests the issue will open on the Nasdaq composite Friday at around $34.82 each - or a 0.09% increase on its last close.
Robinhood's market valuation is $29 billion - below the $35 billion it was seeking. Market participants that use the trading application to participate in this year's "meme" stock trading frenzy snubbed the offering, Reuters said.
The online brokerage sold 52.4 million shares, raising almost $2 billion. Robinhood was last valued as a private company in September at $11.7 billion, according to the BBC.
"The drop in stock price doesn't come as a shock," Jay Ritter, a University of Florida professor, told Barron's.
The price indicated market participants were not as keen on Robinhood's stock compared with some of the year's other offerings.
According to Robert Le, emerging technology senior analyst at PitchBook, several factors caused the selling. Retail investors, unlike institutional companies, tend to let go of their shares.
"There was a lot more selling taking place rather than buying. All of that compounded to drive Robinhood's price down," Le said.
Negative sentiment because of the GameStop trading controversy, where Robinhood restricted trading in that company and other issues, also likely caused retail investors to buy stock with the intent to sell the first day, Le said.
Robinhood's easy to use application made it popular among young investors trading from home in cryptocurrencies and stocks like GameStop during the Covid-19 pandemic.
"We didn't build Robinhood for the rich or those with decades of experience. We built it for everyone," chief executive Vlad Tenev said.
Robinhood - the third-biggest online brokerage in terms of funded accounts - estimates its 18 million retail clients and more than $80 billion in customer assets in the first quarter grew to 23 million users and more than $100 billion in the second quarter.
