A peek at what Robinhood's IPO might look like

Good morning,

It’s been a whirlwind few months for Robinhood.

The brokerage app faced controversy in January after freezing trades for GameStop stock after Reddit users sent shares of the video game retailer into the stratosphere. Vlad Tenev and other Wall Street bigwigs were called before Congress to testify in February, and were grilled by politicians, among other things, about the practice of PFOF or payment for order flow.

Now comes news that Robinhood has filed paperwork with the SEC for its long-awaited IPO, according to reports. This is going to be interesting because Robinhood has long projected an image of standing for the “little guy,” while the IPO process is notorious for benefitting Wall Street insiders. So what form will Robinhood’s IPO take?

My colleague Shawn Tully gives us some clues in his new story. He writes that Robinhood, which was co-founded by Tenev and Baiju Bhatt, looks likely to choose an “affinity program” as part of its IPO. Robinhood’s CFO is Jason Warnick, an Amazon veteran who joined the company in 2018. Warnick spent nearly 20 years at Amazon, and said when he joined the Robinhood that he was looking “forward to advancing our mission to democratize America’s financial system.”

Affinity programs, which set aside share allocations for small retail investors, are certainly one way to do that, but they aren’t the norm. However, there have been a few high-profile examples, Shawn writes: “As far back as 1996, Boston Beer offered coupons with six-packs of Sam Adams granting 30,000 customers the right to buy 33 shares each, amounting to 22% of the offering, at a pre-IPO price of $15.” More recently, “Early last year, Airbnb set aside $238 million in pre-IPO stock in its $3.5 billion offering for its hosts, each of whom could buy up to 200 shares. The stock vaulted from $68 to $144 on opening day, turning the maximum $13,600 investment into $28,700, and today it’s trading at $174.” But there are also cases where affinity programs didn’t work as well, such as with Vonage, Uber and Lyft.

Ultimately Shawn thinks Robinhood would better serve its legions of small investors by doing a direct listing. In addition, “[Robinhood’s] reported plan to develop an app allowing amateurs to buy shares at the pre-IPO underwriting price in other offerings is unlikely to succeed, since it will clash with Wall Street’s desire to ensure that its own fat cats get the rich milk,” Shawn writes.

Give Shawn’s analysis a read!

And let me know what you think about Robinhood’s plans.

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

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Going deeper

For the recent report, Is your capital allocation strategy a long-term plan or a short-term fix?, EY teams surveyed 1,050 CFOs around the world and across industries. About 56% of CFOs said their capital allocation strategy needs to be revamped. Meanwhile, less than half (47%) of respondents said their capital allocation process effectively meets total shareholder return goals. About four out of five CFOs said their capital allocation process needs improvement. Respondents pointed to access to data as the top challenge. Companies should "refocus their portfolios on their core business, carefully choose which initiatives to fund, and address potentially long-term changes to their market,” according to EY.

Leaderboard

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