Robinhood Markets Inc has seen a rush of new investors to its trading app platform, driven by the Coronavirus (COVID-19) lockdowns and the surge in interest in bitcoin and other cryptocurrencies.
In its prospectus ahead of its much-anticipated Nasdaq listing, the memestock investor’s tool of choice said revenues had jumped four-fold in the three months to March but at a cost.
Losses in the quarter surged to US$1.4bn as the app struggled to cope with huge volumes of trading.
Retail investors using chatrooms such as Reddit’s r/WallStreetBets turned en masse against hedge funds shorting stocks such as Gamestop, AMC and Blackberry, now referred to as memestocks.
Robinhood had to halt trading in GameStop due to the scale of the trading, something that has sparked a wave of legal class actions from angry investors.
The filing also revealed Robinhood is being investigated in numerous jurisdictions over its aggressive promotion, links with market makers and customer vetting protocols.
One investor, 20-year old Alex Kearns, committed suicide after his Robinhood account showed a huge deficit when he was in fact up US$16,000.
Only this week the company was hit with a record fine of US$70mln by the US financial regulator FINRA for lax vetting and outages.
Most of Robinhood’s revenue comes from “payment for order flow”, which sees it offload trades in bulk to market makers for a commission, which critics say gives it an incentive to get investors trading more regardless of their circumstances.
In the first quarter of 2021, 59% of the US$522mln revenues came from four market makers, the prospectus said.
During the period, the number of cryptocurrency trades jumped 14-fold with the value of bitcoin and other cryptos in customer accounts surging to US$11.8bn.
Revenues in 2020 were US$959mln, highlighting the recent growth, with the company making a first-ever profit of US$7mln.
Between 20-35% of the shares issued in the IPO will be allocated to Robinhood customers, the filing confirmed, with the trading ticker for the group on Nasdaq to be HOOD.
Estimates currently are that the group will have a market value of between US$30-40bn.