9 Red Flags Investors Should Know About the Robinhood IPO

Once again, for your weekend reading pleasure and to show that I can be balanced I submit yesterday's edition of U.S. News Invested giving the other side (the side I happen to agree with) of the meme/retail/Robinhood trading craze that has seized the market in the last few months.  

I've expressed before my suspicions that what they are doing could not be legal and am glad they are being investigated. After all, what they are doing is intentionally targeting weak stocks, then getting millions of their retail followers to buy thereby artificially inflating the stock price.  When the price gets to a certain level they bail and, as the stock drops, make their fortune either shorting or trading options. It's a trick the big boys use a lot (also illegal) and the fact they've figured out how to get away with it without the burden of being one of the big boys doesn't make it any more legal or ethical. It's bald-faced market manipulation. I was happy to hear that the Robinhood IPO sort of sputtered this week and hope that portends things to come. Enjoy the beautiful (for a change) weekend.  

July 30, 2021 View in Browser Invested Advice, rankings and stock market news for investors.

Happy Friday, investors! Yesterday's Robinhood IPO was a flop as shares fell throughout the day. TODAY'S FEATURED STOCK STORY 9 Red Flags Investors Should Know About the Robinhood IPO Trading app Robinhood Markets Inc. (ticker: HOOD) went public yesterday in one of the largest and most highly anticipated initial public offerings in recent memory. The company achieved a valuation of around $32 billion and raised close to $2 billion, pricing shares at $38 apiece on Wednesday before trading began. Robinhood says it has 22.5 million funded accounts and estimates that its second quarter revenue was between $546 million and $574 million. There's no question Robinhood has been a tremendous success, but the company has also had its fair share of controversy. Here are nine potential Robinhood IPO red flags. 1. Robinhood's engagement is through the roof. At first glance, Robinhood's customer engagement numbers may seem like a great reason to invest in the IPO. Roughly 47% of Robinhood users use the platform on a daily basis. That's the type of engagement investors usually see from social media platforms, not investing platforms. One of the most common criticisms of Robinhood is that the app encourages market speculation rather than responsible, long-term investing. In 2020, the average number of visits was seven per day. Robinhood critics say that engagement is indicative of Robinhood's "gamification" of investing. 2. Robinhood is struggling to handle its growth. Robinhood reported that its total funded accounts have grown from 5.1 million in 2019 to 22.5 million in the second quarter. But there is also evidence that the platform is struggling to handle that growth. Robinhood recently paid a $70 million fine to the Financial Industry Regulatory Authority related in part to platform outages in 2020. Robinhood also came under fire for temporarily restricting trading in so-called "meme" stocks earlier this year. Robinhood claims it simply didn't have enough cash to meet deposit requirements when trading volume surged to unprecedented levels. The restrictions triggered dozens of lawsuits by angry users. Click here to continue. Red flags investors should know about the Robinhood IPO: Robinhood's engagement is through the roof. Robinhood is struggling to handle its growth. Robinhood has an image problem. Robinhood relies heavily on payment for order flow. Robinhood's IPO may be a social media target. Robinhood is highly exposed to option trading. Robinhood has major cryptocurrency risk. Robinhood customers could get burned. Robinhood is steeply valued.