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‘Robinhood could be the meta-meme stock’: EquityZen Co-Founder

Phil Haslett, EquityZen Co-Founder, joins Yahoo Finance Live Robinhood’s $70 million fine and the company’s S1 filing release.

Video Transcript

ALEXIS CHRISTOFOROUS: I want to stick with this Robinhood news now and bring in Phil Haslett. He is co-founder of EquityZen. Phil, thanks so much for being with us. I know this news is just hitting the wire. And Jared was able to highlight some of that for us. Robinhood is saying in this S-1 filing, look, there are going to be possible headwinds. They're probably going to be regulatory. How much of a problem do you think that's going to be for new investors wanting to get into this stock?

PHIL HASLETT: You know, I think this is-- yesterday's news about a $70 million settlement is certainly not the first time that Robinhood's had to deal with regulators and with settlements. I imagine that it's probably going to be baked into whatever trades. Obviously, a concern for any company to come out with that kind of news. Some of the things objectively that work well for Robinhood are some things mentioned by Jared, the fact that its income-- it's a profitable company, the fact that it grew revenue substantially. So those are obviously positive things. But those are going to be offset by the fact that Robinhood may have not just this recent settlement of 70 million, but something else in the future.

KRISTIN MYERS: Phil, curious to know if some of those things that we've heard, some of these controversies-- so that 70 million fine from FINRA, of course, then Robinhood being accused of misleading investors, really, during that whole GameStop fiasco-- how much of that do you think represents some growing pains for Robinhood or do you think could perhaps come back later on down the line to bite not just Robinhood, but then their investors as well?

PHIL HASLETT: Probably a little bit of both, to be honest. Robinhood has taken a very aggressive approach to make investing really accessible, something that we're really supportive of here at EquityZen, kind of democratizing access to an asset class. And when you try to grow that quickly and create 15, 17 million brokerage accounts in a few years span, that's something that took literally decades for incumbents and legacy brokerages like the E-Trades and Fidelities and TD Ameritrades of the world. So with that, it's unsurprising that there would be these types of kind of speed bumps along the way.

ALEXIS CHRISTOFOROUS: What are your thoughts on what Robinhood is doing here with making an unprecedented number of shares at the outset available to amateur investors, to retail investors, as opposed to institutional investors, which is usually what happens at the ground floor of an IPO?

PHIL HASLETT: I think it's fantastic. I think it's the right step forward for how IPO allocation should go in the future. Historically, IPO allocations have gone to banks, most valued customers, typically ultra high net worth investors, institutional investors. And with a built-in IPO pop, that is money that was basically going and directly lining pockets of institutional investors. And that may now find its way into the pockets of Robinhood's customers, right? 35% of an allocation going to retail is pretty much unprecedented, from what I can think of without doing too much homework.

I hope that kind of paves the way for other companies to consider doing this, going directly. And I think it also sends kind of a-- fires a shot across all of the legacy investment banks that if you want to be aligned with a growing aspect of the stock market, which is retail investors, this is probably a step you want to encourage other companies to pursue when they do their own listings.

KRISTIN MYERS: So Phil, we saw a lot of new investors getting involved in this market. And then, of course, Robinhood's formula of trying to democratize investing really worked well for them throughout this pandemic. But what do you anticipate is going to happen once this pandemic is over, and folks don't have as much discretionary income as they did throughout this pandemic? Do you think that Robinhood can sustain some of those revenue figures that we just heard Jared highlighting throughout the-- that they had throughout the pandemic once we leave this pandemic behind?

PHIL HASLETT: Certainly not at the growth rate that Robinhood saw in 2020 versus 2019. I think that's an unachievable kind of growth rate of whatever it was, a couple hundred percent. Robinhood benefiting from a lot of accounts being opened when people were locked down, had stimulus checks. And now you're entering kind of a-- hopefully a post-COVID world where people are going back to work. It's a little harder to day trade when you're sitting at your desk at the office than you are, kind of sitting at home in your pajamas.

And so I think it's going to be really hard for that to be sustained. Probably a similar kind of disclosure that you might find in the S-1 that Robinhood has is going to be similar to what Coinbase said, which is, look, our revenue stream is very volatile. It's going to kind of tie to how active or inactive the kind of asset class that undergirds our business is performing, right?

So Coinbase kind of had to say when Bitcoin volumes drop or Bitcoin prices drop, you're going to see some really unexpected volatility in our revenue growth. And I imagine that Robinhood has a very similar disclosure to kind of prepare investors that may participate in this IPO or trade the stock publicly over the next few years.

ALEXIS CHRISTOFOROUS: What do you expect from the day Robinhood actually goes public? Because I'm wondering, Phil, if this could become the ultimate meme stock, right? The platform on which a lot of these meme stocks were born, the GameStop and AMC trading frenzy by the Reddit crowd. Could Robinhood become that as retail investors perhaps get behind this stock and send it to the moon? Now there's so much anticipation here. I wonder if it's going to disappoint in the way Uber and Airbnb did. Or is it just going to be a stratospheric sort of rise for Robinhood at the-- out of the gate?

PHIL HASLETT: Yeah, well, Airbnb actually performed really well on its IPO, but Uber is a great highlight where a lot of the kind of returns were generated by private investors. Robinhood could be the meta meme stock, right? But it could also encounter a lot of frustrated investors. You know, there's a lot of those accounts that sit at Robinhood that are probably going to pass on this IPO allocation because of frustrations they've had with their accounts during some of these tech issues that Robinhood faced, where there were days where people couldn't even access their Robinhood accounts on some of the most active trading days of the year over the past 12 months.

So it's really kind of-- all I would say is that Robinhood is introducing probably more volatility than any other issuer that's gone public, one, because of who they are and their track record, and, two, because they're offering a very large allocation to retail. Again, that retail allocation for normal IPOs is probably under 10%, maybe even under 5%. So when you have one-third of IPO shares that end up in the hands of retail traders, it's a complete unknown of what's going to happen on that first day of trading and the subsequent days thereafter.

ALEXIS CHRISTOFOROUS: All right, Phil Haslett, thanks so much for joining us to sift through this breaking news regarding Robinhood's coming IPO.