SAN FRANCISCO — Robinhood, the stock-trading app that has grown in popularity and notoriety during the pandemic, revealed skyrocketing revenue and a loss of more than $1.4 billion in the first three months of this year, as it took a key step on Thursday toward one of the year’s most anticipated initial public offerings.
Robinhood made the disclosures in an offering prospectus a day after saying it would pay a $70 million fine — the largest ever imposed by the Financial Industry Regulatory Authority, or FINRA — for misleading customers and harming them with outages.
Its offering, heading into an ebullient and unpredictable stock market, will test whether investors will continue to embrace fast-growing tech start-ups that arrive on Wall Street with uneven profits and plenty of baggage.
In January, Robinhood became the latest in a line of Silicon Valley companies to gain national attention for less-than-ideal reasons when it restricted some trading after a swarm of investors swelled the values of so-called meme stocks like GameStop, the video game retailer.
The move, which Robinhood said it had to make to meet capital requirements, outraged many of its users, drew nearly 50 lawsuits and led to protests outside the company’s headquarters in Menlo Park, Calif. Its executives were summoned by Congress for a tongue-lashing at a hearing a month later.
But Robinhood emerged from the chaos with greater name recognition and millions more users.
The company has long described itself as an egalitarian force that is bringing stock trading to new types of investors. It does not charge for trades, instead making money by selling customers’ orders to Wall Street firms that give it a small fee for each trade.
The prospectus offered the first full look at Robinhood’s financial performance. Nearly 18 million people now rely on its app to buy and sell stocks and cryptocurrencies, with $81 billion in assets under its custody.
The company’s revenue was $420 million in the first three months of the year, a greater than four-fold jump from $96 million a year earlier. It lost $1.4 billion during that period, a far wider than a loss of $53 million a year ago. The loss stemmed from $3.5 billion in debt that Robinhood raised in February.
In 2020, the company eked out a profit of $7 million.
“We are all investors,” the prospectus declared. “We are creating a modern financial services platform for everyone.”
The company was founded by Vlad Tenev and Baiju Bhatt in 2013. Inspired by the anti-establishment ethos of the Occupy Wall Street movement, they said, they set out to make trading easy for millennials through an app.
Unlike traditional brokerages, Robinhood’s app emphasized fast, easy-to-make trades and employed an element of fun, with confetti bursts for transactions, lottery scratch-off features and notifications for earnings calls.
The innovations attracted many millennials to the stock market for the first time, but market watchers said the app encouraged a gambling-like approach to investing. Studies show that active trading typically leads to worse outcomes for investors. In March, Robinhood announced that it would remove the confetti from its app.
Still, the company proved to be disruptive. In 2019, competing stock-trading services including Charles Schwab, TD Ameritrade and E-Trade lowered their fees to zero.
As users flocked to Robinhood, venture capital investors followed. The company has raised $5.6 billion in funding that valued it at $11.9 billion, according to Pitchbook. Its biggest shareholders include Ribbit Capital, Index Ventures, New Enterprise Associates and DST Global.
Robinhood’s egalitarian spirit didn’t protect the company from attacks during the GameStop fracas. Customers accused it of siding with big institutional Wall Street at the expense of regular people after it halted certain trades.
The company’s shareholders, however, stuck with it. Within a week, it raised two rounds of emergency funding totaling $4.4 billion to meet lending requirements for stock trades and to continue making trades.
Robinhood attracted scrutiny from regulators long before the GameStop frenzy drew the national spotlight. In 2018, it announced that it would offer checking and savings accounts, claiming it was already backed by the Securities Investor Protection Corporation, a consumer protection group that oversees brokerages. After the group said it did not insure checking and savings accounts, Robinhood backtracked and started the service a year later.
Last year, Robinhood was fined $65 million by the Securities and Exchange Commission over charges that it misled customers about how it makes money. And in recent months, Massachusetts has escalated a fight against the app, moving to revoke its license in the state, echoing other complaints that its app entices inexperienced investors to make risky bets.
The company also experienced outages at key moments, including in March last year, when the pandemic hit and stocks went into a free fall.
In its prospectus, Robinhood outlined regulatory scrutiny as a risk factor.
Robinhood also said it plans to allow its customers to buy into its offering at the listing price in advance. This year, the company began allowing users to buy the listings of Clear Secure, the airport security company, and FIGS, a medical scrubs start-up.
The company will list its shares on Nasdaq. Its offering will be led by Goldman Sachs.
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