Welcome to the HOOD. Robinhood to start trading Thursday - please steer clear (buy COIN instead).

A big IPO is due to come to market on Thursday, that of Robinhood (stock code HOOD). Good luck...

A few people have asked me what to do with it and I have one simple answer, steer clear. Here is the deal, they are actually living up to their name and handing out shares to users of the app. That's pretty cool. Until it isn't... (because I think the stock will go down from here)

Firstly, the $38/share price implies a valuation of over $30 billion. A year ago the company was valued at $12 billion. Yes the company has done well over the past year+ but that's a big rise for a company that may be past it's prime. For one the world is slowly returning to normal and the days of daytraders dominating markets (and using Robinhood) may be behind us. 

Here is a snapshot of it's revenue (and expense) growth:

Nice chart... That being said, bears like me could point to the fact that it appears likely that growth has peaked and they will have a hard time signing up new customers at the same rate as they have over the past year/18 months. 

Secondly, by any measure the company has been extremely successful. It's grown very fast and been a leader in so many respects (commission free trading, partial shares, etc...) but it may end up paying for some of the largess (they have already paid $70mil in fines and could owe more to regulators over the upcoming months). Keep an eye on this space.

Thirdly, approximately 35% of the shares (or about $700-800mil) are reserved for its users. This could be "weak" hands who will look to dump the shares should they not pop in the first day or two of trading. Much like Coinbase, who is intimately linked to the fortunes of underlying crypto assets, I think that Robinhood's stock price will move in tandem with that of meme stocks such as GME and AMC for example.

What is interesting is that despite a strong market YtD, IPOs have not been partaking in the party. Take a look at these recent listings:


At this point, I would much rather own some COIN rather than the new player in the HOOD.

What do you think?

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