Robinhood IPO A Referendum On Trading ‘Gamification’


Robinhood’s trading debut marks a referendum on the company’s “gamification” niche on Wall Street, or on the platform economy, or initial public offerings (IPOs) in general …

… or maybe all of the above.

To that end, coming into Thursday (July 29), Robinhood had priced its shares at the lower end of the $38 to $42 range. We note that though the implied $32 billion valuation is impressive by any stretch of the imagination, the valuation could have been, of course, even more impressive, and by extension might have signaled more confidence in the company.

(And perhaps the debut — sink or splash — may be a signal of how investors feel in yet another year of listings deluge.)

Early trading action, at this writing, has yet to start. But when it does it may  point toward how (at least) some institutions and the retail investing crowd look at the “gamification” of investing. By this we mean that part of Robinhood’s allure, to the people flocking to the platform, is that it gives a sense of community to upstart, tech-savvy, younger individuals (the firm’s key demographic) who may in many cases be newbies to the Street.

There may be a certain amount of glee of standing hundreds of years of Wall Street, well … stodginess and exclusivity on its head. And on the Robinhood platform, the emojis, the shorthand slang, the churn of daily active trading that has investors moving in and out of positions can feel a bit like a casino.

The Gamification Aspect  

We’ll step out on a limb here and say that casinos can be a bit risky. Boiling down complex financial activities such as valuation, portfolio allocation and risk assessment to fit an app is harder than it sounds. Back in December, the Massachusetts Securities Division filed an action against the company and stated that the use of gamification is aimed at “continuous and repetitive use of its trading application.”

The platform and the interactions — where picks and pans, touts and emojis are all part of the picture — also bring to the forefront the lures and risks of “meme stocks” and whether such interactions can or should be moderated. Where money changes hands, there rests the concept of fiduciary duty. Commission-free trading and the ability to make unlimited trades, combined with a user base that is relatively inexperienced, begs the question of what a platform such as Robinhood must do, if at all, to safeguard the interests of those same customers.

In an example cited in the Massachusetts complaint, at least 670 customers with limited or no investment experience averaged at least five trades daily; in another example cited, a single customer, also with no experience, made more than 12,700 trades in just over six months. Caveat emptor, the saying goes, but it may be the case that the buyer may need a bit of education to be aware of what to beware.

Beyond the platform itself, and as is germane to the people and institutions who will be holding HOOD shares now and going forward.

It’s important to note that the majority of the company’s revenues are transaction based, and part of that is tied to cryptocurrencies. In the company’s S-1 filing with the Securities and Exchange Commission (SEC), the company said, “We expect our revenue for the three months ending September 30, 2021 to be lower, as compared to the three months ended June 30, 2021, as a result of decreased levels of trading activity relative to the record highs in trading activity, particularly in cryptocurrencies, during the three months ended June 30, 2021, and expected seasonality.”

Robinhood also disclosed in its filing that  during the first quarter of 2021 alone, “we saw over 9.5 million customers trade approximately $88 billion of cryptocurrency on our platform, and we held approximately $12 billion in cryptocurrency Assets Under Custody as of March 31, 2021, a 23-fold increase from March 31, 2020.” Those figures give a sense of just how important crypto has become.

An initial day’s trading does not a trend make — but sentiment bears watching, moving forward.