Robinhood CEO and co-founder Vlad Tenev on Thursday defended retail clients that invest in so-called meme stocks, saying the phenomenon is real and gives embattled companies access to capital they otherwise wouldn’t have.
“I think it’s a real thing. There’s customers that love these companies, they want them to thrive,” Tenev told CNBC’s Andrew Ross Sorkin on Thursday ahead of the stock trading app’s Nasdaq debut. “You’re seeing [meme stocks] also get resources that allow them to hire really good management teams, in some cases, and then build for the future.”
Robinhood experienced record levels of new, younger traders entering the stock market during the pandemic. That surge has continued into 2021, marked by frenzied trading around meme stocks.
The millennial-favored stock trading app found itself in the middle of a firestorm in January amid the short squeeze in GameStop, which was partially fueled by Reddit-driven retail investors.
“I think what’s interesting with what we’ve seen in retail investing over the past year is that a lot of these companies have been hit hard by the pandemic,” Tenev said. “It started with some of the airlines and then followed with some of the retailers, some movie chains and brick and mortar. You have the institutions that are basically writing these companies off and then retail investors coming in and keeping them up and supporting them.”
At the height of the so-called meme stocks’ surge, Robinhood restricted trading of certain securities due to increased capital requirements from clearing houses. Robinhood raised more than $3.4 billion in a few days to shore up its balance sheet.
“I don’t know if people have understood the ramifications of what high retail participation in the markets means but I think fundamentally its a very good thing,” added Tenev.
Trouble selling shares
Robinhood — which is expected to start trading under ticker HOOD —sold shares in its IPO at $38 a piece, valuing the company at about $32 billion. Robinhood priced shares at the low end of the $38 and $42 range. The online brokerage sold 52.4 million shares, raising close to $2 billion.
It was not until roughly 9 a.m. ET that Robinood and its underwriters were finished allocating its IPO shares, an unusual circumstance for a syndicate at that point in the process. Goldman Sachs and JPMorgan Chase are the lead investment banks on the deal.
CNBC’s David Faber said an institutional source said “They’re begging us to take Robinhood shares,” Faber said on “Squawk on the Street” before the opening bell on Thursday. “And I said ‘what do they got left?’ and he said ‘lots,'” Faber added.
Robinhood — which planned to allocate 20% to 35% of its IPO shares to its retail clients — was reportedly sending messages late Wednesday to those retail investors about buying shares, according to CNBC’s Leslie Picker.
“Mad Money” host Jim Cramer said Robinhood’s IPO is a “must-work deal.”
“I think retail sentiment is on the line because these are people who want very much to make money and don’t really understand the process because the process is pretty arcane,” Cramer said.
Robinhood is a five-time CNBC Disruptor 50 company that topped this year’s list. Sign up for our weekly, original newsletter that offers a closer look at CNBC Disruptor 50 companies like Robinhood, before they go public.