Don’t get hoodwinked
The financial universe is in a tizzy this week with Robinhood’s 400ish-page IPO filing that revealed some rather interesting details. They threw a lot of info at us—conveniently timed one day after the SEC slapped them with a monster fine—but a few nuggets stood out. Let’s dive in.
Fortune points out how Robinhood is “dependent on the kind of online trading frenzies that have roiled the markets this year” and selling trading data is 81% of their business, as of March 31. That’s the highest rate ever for them, and it’s up 20% from the same quarter in 2019. Essentially, Robinhood seems to be growing because of cryptocurrencies fueled by rampant speculation by public figures like Elon Musk and the like. That’s…risky, to say the least.
Robinhood is essentially the middleman for trading transactions. After Robinhood traders place their order on the app, it’s routed through Wall Street trading firms. While this is common for brokerages, it’s deceptive given how Robinhood frames itself as an investment app for common folks by eliminating fees. In fact, the SEC said that Robinhood users actually traded at prices worse than other brokerage firms, ultimately offsetting savings from not paying trading commission. Yikes. With the context of the fines and charges levied against them, moving forward, Robinhood will be irresistible to the SEC. Mounting regulatory scrutiny is not a particularly strong place to kick off an IPO, regardless of the speculative numbers being tossed around.
Contempt for consumers
The deception mentioned above isn’t a solid long term brand play, especially not when consumer data is 81% of Robinhood’s product offering. Last year the online trading platform was fined $65M by the SEC for “misleading consumers” and just this past week—one day before filing their IPO—was ordered to pay the highest ever FINRA penalty of $70M for ”widespread and significant harm” to consumers. Adding insult to injury, Robinhood never actually copped to wrongdoing, they just agreed to pay the fine. Not many consumers are willing to support companies who repeatedly spit in their eye, especially when it comes to their money.
It’s a powder keg
WeWork, Uber and Lyft had highly anticipated IPOs which ultimately bombed because they failed to clearly lay out their plan for profitability. From what Robinhood has laid out in their IPO filing, it likely won’t get lift-off for a similar reason. It’s not 2010 anymore; the tide has shifted against ‘so-called’ unicorns and investor scrutiny has thankfully increased. Due diligence is back in fashion, and investors are likely to notice that Dogecoin is listed as one of Robinhood’s rare individual assets, which is amusingly temerarious within the context of an IPO. The numbers may look impressive on the surface, but Robinhood is at the mercy of public figures like Elon Musk and social collusion through meme culture. Oh, and the head of the SEC seems to have a personal vendetta against Robinhood for how it “gamifies” investing and encourages people to trade more frequently and often recklessly. Just the other week Bloomberg reported that the SEC is delaying Robinhood’s IPO for misleading consumers. Keeping money under the mattress may seem more fiscally responsible at this point, eh?
Why we’re a DAMN good deal
DigitalAMN’s PAI Ecosystem isn’t dependent on trading frenzies cooked up by Elon Musk et al. Our business model doesn’t sell consumer data to anyone; we just do the work of accelerating and incubating startup companies and operating crowdfunding portals. We don’t appear to be on the radar of any regulator for misleading consumers (or at all) and we have never been fined for shady activity. Sometimes it pays to be boring because that will help to limit regulators knocking at our door or peeping through the windows. The DigitalAMN ecosystem merges everyone’s needs and motivation so we can all share an equal slice of the PAI.