RHOD Stock? Robinhood Chooses to List on the Nasdaq
Robinhood’s stock now has a home.
CNBC reports the millennial-friendly brokerage will list on the tech-heavy exchange over the New York Stock Exchange (NYSE) according to people familiar with the matter.
In our deep dive on Robinhood stock, we noted that Robinhood is seeking a $30 billion valuation and the Robinhood IPO could come as soon as March. Here’s what we know about the company’s stock listing and why investors should pay attention.
Next Up: Robinhood’s Stock Symbol
With its mind made up on which exchange it’ll trade on, Robinhood is one step closer to an IPO that could take place as soon as April.
As far as what this means for a stock symbol, NASDAQ stocks typically trade with four letters. That leaves options open for Robinhood such as:
Typically companies will announce with their S-1 prospectus what ticker symbol they intend to trade under.
The next question you might ask is what difference is there to trading on the Nasdaq vs. the NYSE? The short answer is not much.
The most visible difference between NASDAQ and NYSE is the latter has a physical market, also called a trading floor, where buyers and sellers yell prices for stocks. By contrast, NASDAQ has no open outcry market and trades are conducted electronically.
Additionally, NYSE is defined as an auction market where investors are trading among themselves. Those human traders – aka market makers – generally only step in temporarily to place trades to ensure things go smoothly (side note: they failed during the GameStop stock frenzy) while the NASDAQ is a dealer market where you are buying and selling to the computerized exchange.
For investors, this is mostly a difference without a distinction. If they’re properly functioning, your market maker is an afterthought. In fact, most traders are unaware of a company’s listing exchange because brokers like Robinhood have access to both markets and make trading between both seamless.
However, that doesn’t mean that Robinhood’s choice of exchange isn’t important.
Here’s Why a Nasdaq Robinhood Stock Listing Matters
Robinhood’s decisions mean little for traders on its app but could be important for potential investors. The NYSE can trace its roots back to 1817 while the Nasdaq was founded in 1971. The older Blue Chip financial companies are all listed on the New York Stock exchange while tech-focused companies chose the Nasdaq.
Those distinctions exist today but the sentiment has firmly changed and now it’s tech companies that are in demand.
As a result, you’re seeing the bifurcation of industries in 2021 with new tech-focused upstarts getting significant valuation premiums over entrenched incumbents. Take the auto industry. Even after a significant pullback over the last month, EV maker Tesla is a $560 billion company versus Ford and General Motors that are worth $127 billion combined.
Financial technology (fintech) stocks like PayPal and Square are also trading at a significant premium to traditional financial companies. As a result, private companies are paying close attention to valuations. At a $30 billion market cap, Robinhood is seeking tech valuations rather than pure-play brokerages.
The difference is significant. Last year Morgan Stanley paid $13 billion for Etrade at roughly 4.6 times revenue. Estimates are Robinhood’s IPO valuation could go for 13.6 times revenue and that’s before the first-day “pop” that most IPOs have.
By all accounts, Robinhood is a fast-growing stock but its high valuations warrant caution. If investors stop believing in the fintech story and value it in line with traditional brokerages the price will likely fall despite strong growth.
When Can You Buy Robinhood Stock?
While the choice of exchange might not have large impacts on Robinhood, it is another signal that the company’s IPO is rapidly progressing. While Robinhood originally intended to IPO in early 2021, its plans have been delayed due to market volatility.
During the GameStop frenzy, Robinhood was forced to shore up its balance sheet with capital at more onerous terms. As we wrote in our IPO hub on the company:
“Reports in March 2021 spilled more details on the terms of Robinhood’s latest capital rounds it took when GameStop mania forced the company to shore up its balance sheet with additional capital. The first capital round Robinhood took during this time will convert at a $30 billion valuation, or at a 30% discount to the IPO value, whichever is less. The second is even worse for Robinhood — a $33 billion valuation or 30% discount to IPO price.”
These terms give additional incentive for Robinhood to IPO while the valuation of fast-growing public companies remains high. While the past week has dented enthusiasm for IPOs, all signs point to Robinhood’s first public trade taking place sometime in April. We’ll continue updating our Robinhood IPO article as this story develops.
The next blockbuster IPO?
2021 could be one of the biggest years for IPOs in stock market history. Yet, with just a small fraction of IPOs historically driving nearly all the profits, who will you trust to uncover the most innovative and high-upside IPOs in the coming months?
There’s a company that “called” these businesses long before they hit it big. They first recommended Netflix in 2004 at $1.85 per share, Amazon in 2002 at $15.31 per share, and Apple back in the iPod Shuffle era at $4.97 per share. Take a look where they are now.
That company: The Motley Fool.
For people ready to make investing part of their strategy for financial freedom, take a look at The Motley Fool’s flagship investing service, Stock Advisor. They just announced their top 10 “best buys now” across the entire stock market. Whether you’re starting with $100, $500, or more, you should check out the full details.