Summary List Placement
The US-based trading app raised $2.4 billion in convertible debt financing on Monday, in addition to the $1 billion raised on Friday, per TechCrunch.
Earlier last week, the reddit-fueled trading frenzy caused Robinhood’s net capital obligations and clearinghouse deposit requirements to increase. In response, the trading app claims it had to temporarily limit the buying of reddit-backed shares until it could secure the necessary cash from existing investors to cover the rising costs.
Robinhood has drawn the ire from both users and regulators for blocking trades, although the massive funding line highlights investors’ undying confidence in its growth prospects. Whether right or wrong, many Robinhood users believe the block was to support the hedge funds that were losing out on retail investors’ trades, amounting to market manipulation.
Robinhood now faces a class action lawsuit from customers and is set to testify in front of the House Financial Services Committee on February 18. Yet these scandals will likely have little impact on Robinhood’s growth. As its $2.4 billion rapid debt financing demonstrates, its existing backers remain bullish on the app’s future prospects, and they have good reasons to think so: It made $600 million in payment for order flow revenue in 2020, and the reddit debacle has caused a huge user uptick, with more than 600,000 people downloading the app on Friday alone—which will likely lead to even higher revenues this year.
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