By Michael Brush
Good news for those who’d like to buy stocks at the IPO: Robinhood is back in the mix.
After a two-month lull since its own initial public offering in late July, the online broker now offers customers access to three IPOs scheduled to launch two days this week (Sept. 23-24).
Robinhood /zigman2/quotes/228268942/composite HOOD -4.09% offers a shot at: Ethically sourced jewelry company Brilliant Earth Group /zigman2/quotes/229492982/composite BRLT -2.77% ; medical-diagnostics company Cue Health /zigman2/quotes/229642598/composite HLTH -3.87% ; and Argo Blockchain /zigman2/quotes/229510332/composite ARBK -9.28% , a British bitcoin miner.
I, personally, am putting in requests for all three. They seem like good companies. But the truth is I don’t expect to make a ton of money in them, assuming I even get shares. Robinhood’s allocations have been pretty skimpy. On the bright side, by my calculations, performance of Robinhood IPOs has been good so far.
Call me idealistic, but I also think it’s important to be a part of the cause of “democratizing investing,” Robinhood’s stated mission. I also like to experiment with Robinhood’s IPO process to track firsthand how it works.
Here’s what I’ve learned so far — the good and the bad.
First, Robinhood doesn’t require a minimum account balance to participate, unlike some online brokerages. This plays into the spirit of Robinhood. Bringing IPOs to the masses is part of its mission to “democratize” the stock market. In contrast, for years you had to have a large account at a big brokerage to be rewarded IPO access. (Robinhood also paved the way toward zero-commission trades.)
Next, despite skepticism from at least one market veteran (more on this below), Robinhood’s deal quality has been solid. The seven IPOs it has offered since late May were up 30% as of the end of trading Sept. 17. For context, that’s much better than the 5.4% gains for the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.11% , the flat returns for the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.21% , and the 1.4% decline for the Russell 2000 /zigman2/quotes/210598147/delayed RUT -0.21% .
These IPOs provided a nice first-day pop of 27.6%, on average. That’s way above the 18.4% average first-day gain for IPOs during 1980-2020, according to finance professor Jay R. Ritter at the University of Florida. But it lags behind the average 32% first-day pop for all 294 IPOs so far this year, as calculated by Renaissance Capital, which manages the IPO exchange traded fund Renaissance IPO ETF /zigman2/quotes/207665280/composite IPO -1.22% .
Still, not bad.
The big winners are Clear Secure /zigman2/quotes/227698187/composite YOU -0.28% , a secure-identity platform; Duolingo /zigman2/quotes/228268989/composite DUOL +0.07% in language training; and FIGS /zigman2/quotes/203784030/composite FIGS -1.39% in health-care apparel. They are up 35.2%, 81.4% and 87.3%. To round out the winners, Riskified /zigman2/quotes/228313451/composite RSKD -5.54% in fraud-prevention software is up 29%, and Robinhood is up 11.5%.
The worst performers are Outbrain /zigman2/quotes/228095876/composite OB -2.48% , an online ad-management platform; and F45 Training /zigman2/quotes/227983093/composite FXLV -1.50% in fitness training, down 22.7% and 12.5%.
The biggest problem with Robinhood IPOs is that you only get a very thin sliver of the pie, if anything at all, aside from shares in its own IPO. I’ve only gotten a small portion of the IPOs I’ve put in for so far. For one, I got nothing at all. And it’s not just me. Robinhood uses an algorithm to randomly award shares, but the algo does not have a lot to work with.
“The brokerage’s IPO allocations have been insignificant to date,” says Matthew Kennedy, of Renaissance Capital (aside from its own IPO). The allocations clock in at “up to” 1%-3% of deals. That amounts to just a few million dollars’ worth of shares for its tens of millions of users, says Kennedy.