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Robinhood's Secret Ingredient Has a New Stock Smell

By Rick Munarriz – Aug 9, 2021 at 10:05AM

Key Points

  • Robinhood secured IPO shares for 301,573 of its users.
  • IPO Access is a Robinhood platform that squares away IPO shares of its growing accounts.
  • Figs, Duolingo, and Clear Secure are some of the platform's other participants.

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Robinhood's IPO Access has let its users get in on seven new offerings, including its own. The spring and summer debutantes are averaging a nearly 40% gain so far.

It's not a surprise to see that the most popular stock on Robinhood Markets (HOOD -2.21%) right now is the trading exchange itself. Robinhood went public seven trading days ago, and it's only natural to see users of the next-gen trading platform go for some home cooking in their portfolio accounts. 

Robinhood helped make its own luck on that front. It opened the door for any of its 22.5 million funded accounts to get a piece of the IPO. Just 301,573 account holders submitted requests for the freshly minted Robinhood shares, and they all got what they wanted. 

The interesting thing here is that Robinhood Markets isn't the first new offering that traders on the platform have been able to grab at the debut price. Robinhood has now had seven different new issues made available to its users on its new IPO Access platform. If you think these rookie stocks have been duds outside of Robinhood you may want to check the scorecard. 

A stack of coins moving higher with IPO letters and an upward moving stock chart.

Image source: Getty Images.

Leveling the playing field

Robinhood's mission is to "democratize finance for all," so it's not a surprise that it's been rubbing elbows with underwriters to give its fast-growing account base access to the IPO market. Institutional investors or heavy hitters typically get the first crack at hot new offerings, so it's not a stretch to think that the kind of deals that have shares left over to be distributed among small retail investors on a platform with trigger-finger traders have to be pretty bad. 

As Groucho Marx famously said, "I don't want to belong to any club that would accept me as a member."

Reality is far kinder than the assumption. Robinhood has been able to secure a chunk of some of the hottest summer debuts for its customers as part of the IPO Access platform. All but one of the seven debutantes that it has made available are trading in positive territory.

IPO Date Investors Return
Figs (FIGS -2.12%) 5/27/21 18,453 80%
Clear Secure (YOU 1.99%) 6/30/21 43,104 89%
F45 Training (FXLV -1.35%) 7/15/21 78,250 0%
Outbrain (OB -2.58%) 7/23/21 55,698 (3%)
Duolingo (DUOL -0.26%) 7/28/21 12,602 32%
Robinhood Markets 7/29/21 301,573 45%
Riskified (RSKD -3.57%) 7/29/21 46,500 35%

Data source: Robinhood IPO Access.

From trendy scrubs for medical pros in Figs to helping folks learn new languages on Duolingo, the offerings cover a broad range of industries. However, in a hot-and-cold world of debutantes, it's impressive that just one of seven offerings on the platform is in the red -- and even in that case, Outbrain enters the new trading week down a mere 3% from its IPO less than three weeks ago.

The more impressive metric is that five of the seven offerings have delivered hearty double-digit percentage gains. The average gain is 39.7% through Friday's close. One can say this is a club of which Groucho Marx wouldn't mind being a member.

Naturally they won't all be winners. Even today's winners may not be winners. High-flying market newbies are volatile, and they can descend just as quickly, if not more so, as they ascend. 

Robinhood Markets itself was growing briskly even before it introduced IPO Access in late May, with most of its offerings hitting the market in just the past few days. Revenue soared 245% last year, accelerating to a 309% year-over-year pop in the first quarter of this year. Critics argue that Robinhood is leaning too much on speculative options and crypto trading or that its model is feasting on the controversial payment for order flow as a revenue driver to cover for its commission-free trading. IPO Access is a platform that will help diversify Robinhood's revenue stream, and since all IPO buyers are getting in at the same price it's not as if payment for order flow is an issue. 

It will be interesting to see if Robinhood can keep attracting quality IPOs to its platform. Will the historically impatient users on the trading exchange play nice with Robinhood's request that recipients wait at least 30 days before flipping their new offerings? The threat here is that Robinhood reserves the right to restrict users for 60 days from IPO Access if they unload their new stock too soon. 

Investor demand will likely outstrip supply as more traders see the stellar initial returns of IPO Access. Will more companies going public see the merit of reaching a wider swath of retail investors with their IPO stocks? Ultimately it's just one more tool for Robinhood to justify its post-IPO gains. IPO Access was a hit before the debut of the trading exchange itself, but the secret is out now.  

Rick Munarriz owns shares of Robinhood Markets, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Robinhood Markets Stock Quote
Robinhood Markets
HOOD
$9.31 (-2.21%) $0.21
Figs Stock Quote
Figs
FIGS
$7.40 (-2.12%) $0.16
Clear Secure Stock Quote
Clear Secure
YOU
$29.17 (1.99%) $0.57
Duolingo Stock Quote
Duolingo
DUOL
$68.67 (-0.26%) $0.18
Riskified Ltd. Stock Quote
Riskified Ltd.
RSKD
$4.86 (-3.57%) $0.18
Outbrain Inc. Stock Quote
Outbrain Inc.
OB
$3.40 (-2.58%) $0.09
F45 Training Holdings Inc. Stock Quote
F45 Training Holdings Inc.
FXLV
$2.92 (-1.35%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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