After Robinhood’s share price surged on Wednesday, the company announced Thursday that it has filed to sell up to 97.9 million more Class A shares over time.
The no-fee trading app popular with young, often novice, retail investors registered the investor-held shares in a Securities and Exchange Commission filing. This makes them eligible for sale.
“The timing and amount of any sale are within the sole discretion of the selling stockholders,” Robinhood
said in the filing.
The sales will be made by current shareholders upon the conversion of convertible bonds issued in a prior private placement conducted ahead of the IPO.
“This is not a surprise,” Ryan Sterling, founder of Future You Wealth, a financial advisory firm, said of the filing.
But should the potential for more shares on the market — and thus the dilution of the value of each existing share — change the buy-sell calculus of retail investors?
In Sterling’s mind, at least, no.
Anyone who decides they like the company’s fundamentals should just buy, hold and hunker down amid any volatility or downward price pressure that might emerge as investors sell their stakes, said Sterling, also taking note of the prospective impact of the “Robinhood skeptics.”
‘Your risk tolerance and financial goals should be the ultimate guiding factors in your investment decisions.’
“I think we will see a war over the next couple months between Robinhood enthusiasts and Robinhood skeptics,” Sterling said.
Observers say there’s fodder for both naysayers and believers. On the plus side, the company has grown fast since its 2014 inception and could enjoy wide profit margins, Matthew Kennedy, a senior strategist with Renaissance Capital, previously told MarketWatch. Other analysts have been similarly sanguine about the app’s — and the stock’s — room to grow.
One the flip side, the company faces a slew of lawsuits and negative attention based on the temporary buying restrictions at the height of the GameStop
saga earlier this year. It also faces regulatory attention, including SEC Chairman Gary Gensler’s hint that he’s concerned stock trading via apps can lead to excess. There’s also the concern that rough market patches could scare its newer-to-the-markets users into inaction — of particular note given Robinhood’s payment-for-order-flow revenue model.
Opinion: Three arguments for, and three against, buying Robinhood shares once they start trading after the IPO
The brokerage platform said in its Thursday filing that it would not receive the proceeds of any transactions, and the company declined to comment beyond the filing.
On Wednesday, the company’s stock ended at $70.39, up 50%. By Thursday’s close, the stock had lost more than 27%. Recent days, though, have brought a sharp swing for Robinhood shares after a lackluster debut last week on the Nasdaq that saw the stock opening at $38, unchanged from its IPO price, and ending the day at $34.82.
See: Robinhood’s big day proves it’s the first meta–‘meme stock’
Like Sterling, Stanley Himeno-Okamoto, founder of DRS Financial Partners, sees share-price volatility as par for the course at the moment. Ultimately, in his view, a larger share float can contribute to price stability.
Additional shares coming into the market don’t change the risk-vs.-reward calculus, said Himeno-Okamoto, because company-specific fundamentals still apply.
“At the end of the day, this news shouldn’t be the piece of information that convinces you to invest or not,” he said. “Your risk tolerance and financial goals should be the ultimate guiding factors in your investment decisions.”