What is good in the HOOD? (Answer: Not much)

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What’s going on everyone. Today I want to talk about HOOD and the possible future issues it has that could cause the price to drop even more than we’ve seen recently. At the beginning of last week, I had noticed that HOOD had been in a downtrend since the end of October after their Q3 earnings report. So I decided to grab a random OTM $30 put on 11/15 as a gamble and ended up selling it off for a 400% gain the day before HOOD hit as low as $28.80 on 11/19.

Remember that this is a stock that just had an IPO a little less than 6 months ago and is currently sitting around $10 less than it’s IPO price. So I thought to myself “surely this has to be the bottom. Maybe some calls would be a good idea now”. But after doing some additional research, I don’t think the hurt for HOOD as stopped. Instead I think we’re going to see a Billy Mays formation appear and HOOD may hit us with “But wait, there’s more” downfall.

Here are some key points and recent events on HOOD that lead me to be very bearish on it:

Crypto Wallets: Robinhood has recently come out and stated that the wait list for crypto wallets on their platform was around 1.6 million users. There have been some reports that the wallets have rolled out to some users already, but nothing has been confirmed on that front. Robinhood themselves have said that it will be probably 2022 before they actually roll out. Because of this delay and the huge rise in crypto trading, I feel that most legit crypto traders have already moved on to another platform by now rather than wait for Robinhood any longer.

Shiba Inu/Other Cryptos There is speculation that if Robinhood were to list Shiba Inu as a tradable crypto on their platform that it would provide a huge boost to both Shiba and Robinhood in general. Many petitions have been created demanding the broker list the most recent meme coin on their platform for trade, but those requests have been not been answered yet due to the lack of the coin being listed on their platform. And with the hype around Shiba Inu starting to die down, I think Robinhood has lost out on a lot of potential from the coin’s run up and may now be too late to the game which will in turn hurt them with a possible decline in user base. Add on the fact they they fail to list many of the available coins that you can find on other crypto brokers, and the bear case just keeps building up.

PFOF: Payment for order flow. It’s a thing. Some people don’t care for it, and others simply don’t mind the practice. But the spotlight was put on PFOF after the meme stock debacle in January 2021. And given that many brokers actually utilize PFOF, Robinhood just so happened to catch the most spotlight with their part in PFOF revealing that it was their largest revenue stream. And with the recent release of the Gamestop report from the SEC, it is known that Gensler is putting a bigger eye now on PFOF practices and talks of regulation are becoming more regular. And with talks of future regulation threatening Robinhood’s biggest money maker, investors are sure to get nervous and pull out.

Drop in user count: According to a September article in Bloomberg, Robinhood’s active users had fallen off by 40% and the amount of new app downloads had fallen by 78%. The company itself reported at their last earnings that they expected the amount of growth for the following quarter to not be that high.

IPO Share lockup ending: Robinhood eased the IPO share lockup period for its employees and directors, who could sell 15% of their holdings on the first day of trading. Three months, or 91 days later, they could sell another 15%. Typically employees and insiders are prevented from selling their shares for 90 to 180 days after an IPO. But that was just for Robinhood. IPO shares purchased through other brokers maintained that 90 to 180 day waiting period. Also, many investors who purchased HOOD shares pre-IPO can’t sell their shares until they actually get them. The rumor is that most people won’t be receiving these shares until the beginning of December. Robinhood’s sold shares ahead of it’s debut at $38 a share on 07/28/21. 180 days from 07/28/21 would be 01/24/2022. With that being said, I believe that we will see more selling pressure on HOOD over the next few weeks (possibly all the way until the end of the year) as more IPO shares come unlocked to be sold.

Cathie Wood has been buying it: Need I say more?

I do not currently hold any positions of HOOD, but will be looking at Jan puts most likely. Do what you will with this information. This is not financial advice and do your own research.

Update 11/22: Wanted to add some additional information I came across recently. Shares of the brokerage fell 5% last Friday after Deutsche Bank said it expects Robinhood’s customer accounts and assets will drop again in the fourth quarter and growth will continue to slow into 2022. For that reason, Robinhood is Deutsche Bank’s new “sell idea.”

This thing is definitely going to keep falling I think, but with the low volume it’s going to be a slow fall.

Screenshot 2021-11-22 at 20-52-48 Deutsche Bank says sell Robinhood because meme stock phenomenon caused Street to overesti...
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https://www.barrons.com/articles/how-to-buy-robinhood-ipo-stock-51627390369

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Quality DD, added to watchlist. if it burns, I want to be in the front row

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HOOD has been a big pile of disappointment since its debut and will need to something soon to gather interest in its stock. Whats interesting with this stock is its complete lack of volume - some 4hr intervals have volume as low as 0 which is silly considering its an application to trade stocks.

One of their biggest follies is a failure to adapt. Their product offering has been the same basically since inception. I can’t recall a new feature being launched since they partnered with a bank to provide a card (then changed partners to JP Morgan).

HOOD also only has 9.88% institutional ownership indicating that there’s not strong faith from an institutional front either.

I genuinely don’t know how low it can go but if they don’t do something, almost literally anything, soon I imagine we will continue to watch slow bleed via anemic volume.

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Apparently short share utilization is only around 91% at an average price of $35. So institutions still have some room to short it down some more also.

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Surprised you didn’t mention their recent data breach.

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I actually completely forgot about it. And it never really popped up randomly when searching news articles.

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It jumped down again this week after a 2nd news piece about their data breach where they stated there could be even more data that was breeched FYI.

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So after doing some more digging, I did come across another article giving some confirmation bias to HOOD IPO shares coming unlocked in December. In a Sept. article from TheStreet, J.P. Morgan analyst Kenneth Worthington was quoted as saying:

“With more shares unlocking in coming months and with the greatest lockup expiration on Dec. 1, we see the risk that Robinhood shares will come under more meaningful selling pressure and are at risk of underperforming. We see the incremental float as a positive as it will limit the ability of less sophisticated investors to move the stock beyond fundamentals, influence that remains a concern for many institutional investors”.

Upon further research, I came across the terms of the IPO shares locked in Robinhood’s Q3 transcript posted on 10/26. I’ll admit this would have been crucial to know earlier in my DD posting, but hopefully we’re not too late to the game. Per Robinhood’s transcript:

Update Regarding Resale Registration Statement on Form S-1

As previously announced, we filed a registration statement on Form S-1 (File No. 333-258474) (as amended, the “Resale S-1”) with the Securities and Exchange Commission (the “SEC”) for the benefit of certain Robinhood shareholders that received Class A common stock upon the automatic conversion of Tranche I convertible notes in connection with our IPO (the “Conversion Shares”). The Resale S-1 registers the potential resale of the 97.88 million Conversion Shares by holders of such shares and was filed pursuant to a pre-existing contractual obligation under the purchase agreement for the Tranche I convertible notes. Separately, in connection with the IPO, the Tranche I note investors agreed not to sell 50% of the Conversion Shares until the 28th day after the Resale S-1 is declared effective (the “Conversion Shares Lock-Up”), with the understanding that the other 50% is not subject to any lock-up. The SEC declared the Resale S-1 effective on October 13, 2021; however, no sales have occurred under it because we issued a customary suspension notice (the “Suspension Notice”) to prevent its use pending our earnings announcement.

The Resale S-1 Suspension Notice does not prevent Tranche I note investors from selling unlocked Conversion Shares by other means. As an alternative to selling under the Resale S-1, U.S. securities law permits Conversion Shares to be sold under SEC Rule 144 in certain circumstances. Beginning on October 27, 2021, which is the 91st day after Robinhood’s IPO, the 48.94 million Conversion Shares that are currently unlocked will be eligible for sale in the public market under Rule 144.

Robinhood is cancelling the Suspension Notice effective one full trading day after this press release. As a result, those same Conversion Shares that are currently unlocked will also be eligible for sale under the Resale S-1, starting with the opening of the Nasdaq market on October 28, 2021.

The other half of the Conversion Shares (an incremental 48.94 million shares) will be released from the Conversion Shares Lock-Up and will become eligible for sale on November 10, 2021, which is the 28th day after the Resale S-1 was declared effective.

In the coming days, Robinhood expects to file two prospectuses with the SEC (which will appear as filing type 424B3) in connection with the Resale S-1. The first will be filed on or around October 27, 2021 and will supplement the Resale S-1 to include information from this earnings announcement, among other matters. The second will be filed shortly after our upcoming Quarterly Report on Form 10-Q, and will supplement the Resale S-1 to include information from the Form 10-Q. These prospectuses relate back to the Resale S-1; Robinhood itself is not selling any additional shares and these filings do not represent underwritten secondary offerings.

Update Regarding Other IPO Lock-Ups

Apart from the Conversion Shares, many of the Company’s pre-IPO shareholders are subject to lock-up agreements or market standoff agreements that limit their sale of shares of the Company’s stock during a lock-up period that expires immediately prior to December 1, 2021 (as further described under “Underwriting (Conflicts of Interest) – Lock-Up Agreements” in the Company’s final IPO prospectus filed with the SEC on July 30, 2021).

Most of those agreements (including those of our founders and chief financial officer, the parties to our Investor Rights Agreement, certain non-employee common holders, and our IPO anchor investor) provided for a partial early lock-up release on October 27, 2021 if certain market-price conditions were met during the 15 trading day period ended October 26, 2021. Those market-price conditions were not met, so those early lock-up releases will not occur. Those holders’ shares will remain subject to the lock-up agreements through the close of trading on November 30, 2021.

The lock-up terms applicable to the Company’s current and former employees (other than the founders and chief financial officer) provide for a partial early lock-up release that will occur on October 27, 2021. Starting on that day, each such individual may sell up to an additional 15% of the Robinhood securities she or he held at the time of the IPO, as further described in the final IPO prospectus. We estimate these lock-up releases for current and former employees will result in an incremental 12.6 million shares becoming eligible for sale on October 27, 2021 (subject to the Company’s quarterly trading window for insiders, if applicable). Also on October 27, 2021, the Company will file a Form S-8 POS with the SEC to deregister the employee stock plan shares originally registered for resale on July 29, 2021 (SEC File No. 333-258246) that remain unsold as of October 27, 2021, because SEC Rules 701 and 144 will be available for the shares.

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This is just too tempting, adding to my list to buy puts on Monday!

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They have been paying off nicely for the last two weeks.

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does this mean they’ve already begun selling shares before the lockup expiration of Dec 1? Am I reading that correctly? Or does this mean some were unloaded and most of it will be unlocked Dec 1?

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We should already be seeing sales of IPO shares that came unlocked on 11/10. That is most likely the steady sell pressure that has been going on for the last 2 weeks.

About 97.88 million IPO shares were in lockup agreement. 48.94 million became unlocked on 10/27, and the other 48.94 million became unlocked for sale on 11/10. A lot of the higher ups were going to be able to sell a chunk of those 48.94 million shares under a special agreement back on 10/27 when the shares first came unlocked, but the conditions of that agreement weren’t met so those shares were delayed for sale until the original lockup end date of 12/01.

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got ya, so there will still be continued selling pressure, just half the amount we initially expected. Thanks brother.

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i posted this on trading floor but the much anticipated share unlock for HOOD resembles the sentiment around CPNG before 9/7. CPNG saw a big sell off the prior days leading up to 9/7 as the last remaining shares were to be unlocked and sentiment expected these investors to unload their shares.

they did not.

9/7 was a big green candle day after days of selling off. i’m not suggesting that CPNG and HOOD are similar companies or that the stocks trade in similar patterns. only that the sentiment prior to unlock appeared to anticipate further downward pressure from selling of unlocked shares - an event that did not materialize.

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Hope all that played this did well on it today. Sold off most of my positions today for a nice gain. May look into some more Jan puts tomorrow. I’m still holding a few weeklies as I am expecting a continued downtrend possibly for the next few weeks as more shares come unlocked until that 180 day period since their IPO is over.

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Yes, these puts were a nice green in a sea of red today. I’m holding mine for a bit longer. It looks like it’s trading in a downward wedge the last month or so since earnings report. I’m going to ride it until I see it break that trend.

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What’s up everyone. So HOOD puts again were a money maker today. Volume was about 10 million less than it was yesterday. So it could be that selling pressure is dying down a bit, or people are just waiting to see what the rest of the market does.

Also, I was wrong in my initial understanding of the IPO lockup period. Dec 1st was the final expiration day for locked up shares even though 180 days doesn’t fall until Jan 2022. IPO shares have been unlocking over the last few months, but now where HOOD had 70 million shares to trade around the time of it’s IPO it now has practically the entire 600 million share float available to be sold now. So we could continue seeing more selling pressure, or it could start rebounding any moment. It set new daily and 52 week lows today, so currently unsure if the bottom has been set. Things are a little riskier now than they were on the target date for this play.

Also, there was a pretty negative VICE article today pretty much dogging Robinhood and their gamification of their platform:

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Hey everyone. So HOOD puts printed money again today, but I am officially out of all my positions. I believe that $21.50 is the new all time low for HOOD, and we’ll probably start seeing recovery on it next week. But we could also see some additional downtrend depending on what SPY does. I will be looking into HOOD calls possibly on Monday. Congrats to anyone who made money, or continued to make money on this play.

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Thanks for the diligent updates to this successful play. It’s much appreciated. Hall of famed.

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