Robinhood IPO could shower co-founders with billions through stock awards

Robinhood Markets has agreed to give its CEO Vladimir Tenev and chief creative officer Baiju Bhatt another four years to reach share price targets that trigger stock awards worth $1.4 billion. Reuters reported this development citing a regulatory filing and four executive compensation experts who reviewed the document.

The company will award its billionaire founders 13.8 million shares when the share price reaches a certain price level at the time of its initial public offering (IPO), mentioned in the report.

Robinhood filed for an IPO with the U.S. Securities and Exchange Commission (SEC) on July 1, last week, revealing revenue of $959 million in 2020 as retail trading rose to 245% from 2019. 

The stock award plan mentioned in the S-1 filing could earn the co-founders billions of dollars in the future. Robinhood’s board approved restricted stock awards of $22 million and $13.3 million to Tenev and Bhatt, respectively, which will be given over eight years after the stock trading app’s IPO, depending on the stock’s performance. These terms were tweaked in late May so the founders would get a second chance to receive the shares if the IPO price does not meet the thresholds under the plan, reported Reuters.

The filing stated that the fair value of the company’s shares was $16.33 at the end of December, according to the board. Under the changed plan, co-founders will have until the end of 2025 to hit the share price target. 

The original plan required the stock to be priced at $30.45 apiece in the IPO for the co-founders. For them to receive $1.4 billion of the stock award, the shares would need to be priced at $101.50 apiece. This change could cost Robinhood roughly $569.1 million in accounting expenses over time, mentioned the report.

The stock-trading app derives its revenue from trading in speculative markets. Out of the cryptocurrency business, 34% of the revenue was generated via dogecoin transactions. Its securities lending business grew by 448% in the first quarter. The revenue of $35 million generated, was through the lending of customers' shares to short-sellers for a fee. 

Its exponential growth in riskier market dealings has added to a host of technical problems and regulatory investigations into the suitability of its offerings. 

The filing stated that the co-founders would not be granted any other equity awards through the eighth anniversary from when they received some of the stock unless there are "changes in circumstance or in our business."

Picture Credits: 9TO5Mac