Before you unload grandma’s 401K into Robinhood
Headline Grab: Robinhood reportedly plans to offer up to 35% of its shares in its coming IPO to individual investors on its app.
The Play: Robinhood’s IPO is shaping up to be one the most talked about IPOs of 2021. It has all the makings of a meme-stock hype train. IPOs tend to be seen as lucrative investments, often creating headlines of large first day gains. But before you unload grandma’s 401K into Robinhood (ticker $SCAM, jk…unsure what the ticker is yet), let’s keep a few things in mind.
First, you must be a Robinhood account holder to have access to this deal. Robinhood will likely then allocate requested shares to you at the Final Offering Price (FOP). This is VERY different the Initial Price Offered (aka, the share price cited in most headlines).
Let’s explain. Last year, AirBNB ($ABNB) priced its IPO at $68/share. However, its FOP (the price it started trading at) settled at $146/share, 2x more than the IPO price. Meaning, you’ve purchased those shares at $146/share, not $68. And no, the difference wasn’t caused by hidden cleaning fees & taxes.
And where you enter a trade matters. Earlier this year, Bumble ($BMBL) set its IPO price at $43/share. However, it started trading at around $76/share. As of July 1, 2021, it was trading at $58. So, if you bought Bumble on Day 1 at $76, you’d be down nearly 20%.
Robinhood will, in all likelihood, trade higher on the first day based on hype (ie, demand outstripping supply), because everything, and we mean EVERYTHING right now, is oversubscribed. But if the recent history of headline grabbing Tech IPOs tell us anything, buying at the FPO won’t deliver the trade of a lifetime you’re anticipating.
Sometimes, doing nothing, is actually doing something.
By: Edward L. Sherfey, III, CFA
What I’m listening to today: Throwing it back to 2014, when Kygo made his debut on BBC radio as a guest on Dilpo & Friends. 60' of those pre-weekend vibes you need.
Obvious Disclaimer: I am not a financial advisor. All opinions expressed in this article are solely my own opinions and do not reflect the opinions of any other entities of mine. This article is for informational purposes only and should not be replied upon for investment decisions, advice, or recommendations. I may maintain positions in any of the securities mentioned this article.
