Shares of Robinhood Markets Inc. closed down more than 8% in their trading debut on the Nasdaq today after the company raised nearly $2 billion through its initial public offering Wednesday.

The investors who participated in the IPO bought 52.4 million shares for $38 apiece. Robinhood is currently trading at about the same price, which gives it a market capitalization of about $32 billion. 

Of the nearly $2 billion raised in the public offering, $1.89 billion will go to Robinhood. The company said it plans to use the capital to grow its headcount, expand customer service operations and support other business activities.

Robinhood develops a popular investing app that enables users to trade stocks and other assets without the commissions normally charged by brokerages. In the regulatory paperwork for its IPO, the company estimated that it was on track to close the current quarter with revenues of $546 million to $574 million, more than double its sales a year ago.

Robinhood’s top line momentum is fueled by the rapid growth of its user base. The number of user accounts on the startup’s app that are tied to a bank account jumped 143% last year, to 12.5 million. The number increased to 18 million by March 31 and stood at 22.5 million a few weeks ago, when Robinhood filed an updated version of its IPO paperwork with regulators.

The growth of Robinhood’s user base is driven in significant part by first-time retail investors. One factor likely contributing to the app’s increasing popularity among such users is that Robinhood is a major provider of informational resources and financial news for first-time investors. Monthly unique visits to the company’s Robinhood Learn financial information library grew sixfold from January 2020 to March 2021, the company said in its IPO filing, stating that “education is core to accomplishing our mission.”

Robinhood credits its internally developed technology systems as another factor behind its growth. “Our platform is entirely cloud-based and built on proprietary, API-driven services to meet the needs of a fast-growing, mobile-first, modern financial institution,” the company detailed in its IPO filing. “Our platform also enables a vertically integrated, end-to-end approach to product development, which helps us move faster from idea to creation, empowers us to better scale with the growth of our business and affords us better unit economics that we can share with our customers.”

Robinhood is investing heavily to sustain its revenue: The company expects to close the current quarter with a loss of between $487 million and $537 million. “We expect our operating expenses to continue to increase in the future as we increase our sales and marketing efforts, continue to invest in research and development, further develop our products and services, improve and expand our customer support functions and expand into new geographies,” the company said ahead of the IPO.

Even with its focus on growth, however, Robinhood logged multiple profitable quarters in the past two years. Moreover, the company is improving certain financial metrics that may help boost long-term profitability. 

One of those metrics is revenue payback period, a measure that Robinhood uses to assess the amount of time required to generate sales equal to the marketing expense incurred to acquire new users. As of Dec. 31, 2019, it took Robinhood about 13 months to earn enough revenue to match marketing costs related to user acquisition. By the end of 2020, that time frame dropped to less than five months, which means the company can generate a return on its investment faster. 

Prior to going public, Robinhood raised about $3.2 billion in venture funding and $2.4 billion in convertible debt. The company’s most recent capital raise valued it at $11.7 billion.

Photo: Nasdaq