United States securities and exchange commission logo
April 21, 2021
Vladimir Tenev
Chief Executive Officer
Robinhood Markets, Inc.
85 Willow Road
Menlo Park, CA 94025
Re: Robinhood Markets,
Inc.
Draft Registration
Statement on Form S-1
Submitted March 22,
2021
CIK No. 0001783879
Dear Mr. Tenev:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Draft Registration Statement submitted March 22, 2021
General
1. You state that since
2020 you offer a program through which investors have the
opportunity to purchase
fractional shares. Please provide us with a complete description
of the material terms
and features of this program and your legal analysis whether the
offer and sale of the
fractional shares through this program represent the offer and sale of
a separate or new
security. See Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce,
Fenner & Smith, Inc.,
756 F.2d 230 (2d Cir. 1985) and Abrahamson v. Fleschner, 586
F.2d 862 (2d Cir.
1977). In your response, address whether fractional share investors
receive dividend,
voting, and other rights associated with whole-share ownership and, if
so, explain how
fractional share investors are entitled to these rights, whether by contract,
Vladimir Tenev
FirstName
RobinhoodLastNameVladimir Tenev
Markets, Inc.
Comapany
April NameRobinhood Markets, Inc.
21, 2021
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applicable law (including Article 8 of the UCC), or both.
2. You state that you offer trading in seven cryptocurrencies through
your Robinhood
Crypto, LLC subsidiary. Please provide us with your legal analysis as
to how you
conclude that the cryptocurrencies traded on your platform, and others
that may be traded
in the future, are not securities and, therefore, you are not
facilitating, or causing you to
engage in, transactions in unregistered securities. In your response,
please specifically
address how your applicable internal policies and procedures
allow you to reach this
conclusion. In preparing your response, you may find useful the letter
sent by the SEC s
Strategic Hub for Innovation and Financial Technology to The New York
State
Department of Financial Services on January 27, 2020, available at
https://www.sec.gov/files/staff-comments-to%20nysdfs-1-27-20.pdf.
3. We note your disclosure of your referral program, which provides
referring and referred
customers with a stock reward ranging from $2.50 to $10 in value, up
to $500 annually
per referring customers. Please include a section on the Robinhood
Referral Program and
ensure your revised disclosure addresses the following:
Provide a full description of the terms and features of the
referral program, including
how and when you issue the credits of stock rewards;
Reconcile your disclosure with your website, which states the
stock could be valued
up to $225;
Explain how you determine which stock reward to grant and how you
determine the
value, also addressing whether the referring or referred customer
have to provide
consideration in any form;
Explain whether the stock reward is granted from your stock
referral inventory or if
you purchase the reward from the market;
Tell us how you are accounting for and value the stock referral
inventory as well as
how you record the stock reward when you grant it to the
referring and referred
customer;
Explain how you determine which customer gets a particular share
and further
explain what you mean by "up to $500 annually per referring
customer." In other
words, explain whether these credits granted are on an annual
basis or on a one time
basis; and
Discuss all of the costs affiliated with the program and explain
your accounting
treatment and recognition for such costs. In this regard, clarify
where the related costs
(e.g., stock referral inventory, gain/loss on stock referral
inventory issued as rewards,
etc.) are reported within your financial statements.
Please also provide us your analysis how the offer and sale of stock
rewards under the
referral program complies with Section 5 of the Securities Act.
4. We note the substantial number of graphics in the gatefold and
throughout the prospectus,
including key performance indicators without accompanying narrative
disclosure and
numerous customer testimonials. Please revise to ensure that any
graphics and
accompanying text provide a balanced view of Robinhood and its
business. Please also
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FirstName
RobinhoodLastNameVladimir Tenev
Markets, Inc.
Comapany
April NameRobinhood Markets, Inc.
21, 2021
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ensure that graphics including metrics and other key numbers include
cross-references to
their respective definitions and that customer testimonials are not so
extensive that they
obscure other prospectus disclosure and do not otherwise include
information taken out of
context. For guidance, please refer to Securities Act Forms Compliance
and Disclosure
Interpretation 101.02.
Market, Industry and Other Data, page ii
5. It is not appropriate for either you or the underwriters to disclaim
the accuracy or
completeness of the prospectus disclosure. Please revise the carryover
paragraph on pages
ii iii accordingly.
Prospectus Summary, page 1
6. Please revise to provide balanced disclosure in your Summary, Business
and MD&A
sections by discussing material challenges and obstacles you face in
light of recent events
and the reputational risks described in the risk factors. For example,
address changes you
have made, are in the process of making, or plan to make in response
to complaints about
limited customer support. We also note from media accounts that you
have removed from
the app digital confetti and other behavioral prompts in
response to criticisms that they
lead to gamification of trading.
7. Please provide an organizational chart outlining your corporate
structure and
illustrating the relationships of the various entities discussed
throughout the filing.
Financial Tool to Financial Network, page 3
8. We note that over 80% of new funded accounts in 2020 were from
customers joining your
platform organically or through your referral program. Please revise,
here and elsewhere
as necessary, to provide a clear definition of "organic growth." In
addition, clarify if a
user (or customer) may have multiple funded accounts (e.g., equity,
options,
cryptocurrency, cash management, Robinhood Gold, etc.).
Our Opportunity, page 5
9. Please place the second bullet point in context by including
disclosure regarding the
volume of cryptocurrency trading on the RHC platform, the percentage
of Assets Under
Custody represented by cryptocurrency, and the percentage of
transaction-based revenue
attributable to cryptocurrency trading.
Implications of Being an Emerging Growth Company, page 11
10. Please provide us copies of all written communications, as defined in
Rule 405 under the
Securities Act, that you, or anyone authorized to do so on your
behalf, present to potential
investors in reliance on Section 5(d) of the Securities Act, whether
or not they retain
copies of the communications. Please contact J. Nolan McWilliams at
the number below
to discuss how to submit the materials, if any, for our review.
Vladimir Tenev
Robinhood Markets, Inc.
April 21, 2021
Page 4
Summary Historical Consolidated Financial Data and Other Data, page 16
11. Please revise your tabular presentation to include net income (loss)
per share information,
here and within your Quarterly Consolidated Statements of Operations
on page 114.
Key Performance Metrics, page 18
12. We note your key performance metrics in the table provided, please
address the following:
In regard to Note (1) to the table, revise to disclose the reasons
that would cause a
funded account to have a balance below zero. Quantify the number of
accounts and
aggregate account balances at the respective periods ended. Tell us
the steps taken to
collect the balances owed and where such amounts are recorded in
your financial
statements.
Note (2) to the table specifies that MAU is for the month of
December in each
respective period. Revise your table to also include the MAU for
the fiscal year.
Revise your table to also include a separate metric for MAU with
funded accounts.
Revise your table to also include a separate metric for daily
customers and provide a
note differentiating this metric from MAU.
In regard to Note (3) to the table, revise to quantify each asset
class within your assets
under custody (i.e., equities, options, cryptocurrency and cash
held by users in their
accounts, net of customer margin balances).
Risk Factors, page 23
13. We note several risk factors in which you describe the risks that
payment for order flow
may be subject to greater regulation or disfavored by customers.
Please add a risk factor
describing risks to investors from payment for order flow practices,
including the potential
for conflicts of interest on the part of market-makers. Please also
describe the risks to the
extent that transaction-based revenues are derived from a limited
number of market-
makers.
Our compliance and risk management policies and procedures, page 58
14. Please place this risk factor in context by describing specific
compliance risks associated
with your various lines of business. For example, describe the risks
associated with your
fractional share program, including risks associated with the failure
to report trades to
trade execution facilities or comply with other public reporting
requirements.
Use of Proceeds, page 89
FirstName LastNameVladimir Tenev
15. To the extent known, please quantify the estimated amount of proceeds to
be used for
Comapany NameRobinhood
capital Markets,
expenditures and to fundInc.
the tax remittance obligations
described in the third
paragraph.
April 21, 2021 Page 4
FirstName LastName
Vladimir Tenev
FirstName
RobinhoodLastNameVladimir Tenev
Markets, Inc.
Comapany
April NameRobinhood Markets, Inc.
21, 2021
April 521, 2021 Page 5
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview, page 102
16. Please briefly explain the importance of Monthly Average Users to the
management of
your business and explain how MAU correlates to growth in cumulative
net deposits,
revenue, and other key performance indicators. In addition, please
further define the
nature of the activity that counts a user as being "active." That is,
clarify whether these
users are recurring, indicate why a user would remain active on a
monthly basis and
disclose whether there is a requirement to access your platform on a
monthly basis.
Please also balance your discussion of MAU growth by briefly
discussing the limitations
of the metric, including that it does not measure the depth or quality
of the user s
experience.
Our Business Model
New Customer Growth, page 103
17. Please substantiate that your platform has high engagement and
briefly discuss how you
measure potential customer engagement and the extent to which customer
engagement
correlates to revenues.
18. Please disclose and discuss the changes in the incurred average
customer acquisition costs
for fiscal 2019 and 2020, as well as the revenue payback period
recognized for the year
ended December 31, 2020. Please also briefly explain the significance
of reducing
average revenue payment period, quantify the efficiencies in marketing
expenses as a
result, and discuss whether you expect this trend will continue.
Customer Relationship Expansion, page 104
19. Please quantity cumulative net deposits by cohort for each year
presented in the chart on
page 104. To the extent material, discuss any reasons for variances
among different
cohorts in year over year growth. Similarly, please revise the Annual
Revenue by Annual
Cohort chart on page 105.
Annual Revenue by Annual Cohort, page 105
20. Please disclose the average revenues per user for the periods and
provide expanded
disclosure discussing how the increases in both net cumulative funded
accounts and
monthly average users correlate with the increases in revenues being
recognized.
21. Please disclose the amount of cash outflows due to debit card
transactions as well as
identifying the associated debit card fees recognized in each period.
Key Performance Metrics
Revenue Payback Period, page 106
22. We note your discussion of the revenue payback period and how the
calculation excludes
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Markets, Inc.
Comapany
April NameRobinhood Markets, Inc.
21, 2021
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certain costs. Please revise to explain in sufficient detail how the
amounts attributable to
each excluded item (i.e., customer goodwill, gains/losses on stock
referral inventory, and
headcount, occupancy and depreciation attributed to the marketing
team) are determined
and allocated.
Key Factors Driving Our Performance, page 107
23. Please discuss, including quantitatively where possible, any known
trends or uncertainties
that have had, or that you reasonably expect will have, a material
favorable or unfavorable
impact on revenue or results of operations. We note by way of example
your general
discussion of key drivers, including seasonality, consumer behavior,
market trends, and
macroeconomic events, your disclosure in the carryover risk factor on
pages 24-25 that
you expect growth rates of revenue, MAUs, AUC, and Net Cumulative
Funded Accounts
to decline in future periods, and the impact of the pandemic you
discuss in the carryover
risk factor on pages 32-33. Refer to Item 303(a) of Regulation S-K and
Section III.B.3. of
Release No. 33-8350.
Investing in Our Platform, page 108
24. Please quantify the estimated investments in platform capabilities and
regulatory and
compliance functions and discuss the key milestones and time frames to
implement each
investment. To the extent this is not yet known, briefly describe the
factors you will
consider in determining the amount and timing of these investments.
Revenues
Transaction-based revenues, page 109
25. We note your disclosure that 75% of your revenues are derived from
payment for order
flow. Please identify the participating market-makers and disclose the
percentage of
revenues attributable to each respective market-maker.
Revenues, page 111
26. We note your discussion of transaction-based revenues. Please revise
to address the
following:
Discuss and disclose the transaction-based revenues for equities,
options and
cryptocurrencies separately for the periods presented.
Provide a more granular discussion of the changes in transaction
volumes along with
average fee rates for the periods presented.
Explain and quantify how the fractional shares program impacts
your transaction-
based revenues, and provide volume and fee rate information.
27. Please revise to separately discuss and quantify the interest revenues
recognized on
securities lending activities, margin loans as well as amounts earned
related to cash and
deposits with clearing organizations for the periods presented.
Vladimir Tenev
Robinhood Markets, Inc.
April 21, 2021
Page 7
28. Please revise to disclose the loan margin balances outstanding at each
period as well as the
average interest rate on these loans.
29. Please revise to disclose the interest expense recognized on the
revolving credit facilities
in each period presented.
30. We note your discussion of other revenues. Please revise to address
the following:
Separately discuss and quantify the Robinhood Gold subscription
revenues and the
proxy rebate revenues recognized for the periods presented.
Expand your disclosure to quantify the number of Robinhood Gold
subscribers for
each of the periods presented.
Describe the nature of proxy rebate revenue and expand your
revenue recognition
policy within your notes to the consolidated financial statements
to describe how you
account for this revenue stream.
Operating Expenses, page 112
31. Please revise to separately discuss and quantify the changes in the
individual cost
components for each operating expense identified for the periods
presented.
32. Please revise to provide a more thorough discussion of the nature of
Fraudulent Deposit
Transactions, the frequency of these transactions, how you determine
the credit losses for
these transactions and the reasons for the increase in the provision
for credit losses.
Further quantify the amounts recognized in each period and the steps
being taken to
reduce or remediate these issues.
33. Please revise to provide a specific and through discussion of the
margin lending business
addressing the collateral requirements as well as the procedures in
place to prevent losses.
34. Please revise to provide an aging analysis of the unsecured receivable
balances as well as
a rollforward of the allowance for credit losses for the periods
presented.
Expanding Internationally, page 136
35. Please clarify your plans to pursue international expansion, including
the time frame and
factors you consider in determining whether to proceed.
Our Commitments and Responsibilities, page 137
36. Please refer to "Quality Execution" on page 138. To the extent you
believe your
execution quality exceeds your duty under the federal securities laws to
regularly and
rigorously review execution quality, please briefly describe how so and
discuss your basis
for this
FirstName belief.
LastNameVladimir Tenev
Comapany
37. NameRobinhood
Please Markets, Inc.
discuss your investment in expanding customer support functions,
including
estimated expenditures,
April 21, 2021 Page 7 material milestones, and the time frame for
implementation.
FirstName LastName
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FirstName
RobinhoodLastNameVladimir Tenev
Markets, Inc.
Comapany
April NameRobinhood Markets, Inc.
21, 2021
April 821, 2021 Page 8
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Robinhood Crypto, page 141
38. Please revise your disclosure to describe in greater detail how
cryptocurrency trading
works through your platform, including the roles played by your
affiliates, third-party
banks, and trading venues in facilitating cryptocurrency trades.
39. We note your disclosure that you intend to provide your customers with
the ability to
deposit or withdraw your seven traded cryptocurrencies into or from
your platform in the
future. Please revise to disclose your anticipated time frame for
providing this service,
including any specific milestones and the anticipated costs associated
with it.
40. Please discuss here crypto asset forks and airdrops and describe the
criteria you use in
determining whether to support forked or airdropped crypto assets.
Please also explain
the potential impact of such determinations on your customers. We note
your statement in
the first full risk factor on page 64 that you may not wish or be able
to support an asset
resulting from the fork of a network.
Certain Relationships and Related Person Transactions
Convertible Note and Warrant Financings, page 182
41. We note the issuances of two tranches of convertibles notes and
warrants in February
2021. Please revise to indicate if the convertible notes were issued
with a beneficial
conversion feature and if so, discuss the accounting and your
consideration of ASC 470-
20 and ASC 815-15. In addition, clarify how the company will account
for the warrants
issued with the convertible notes.
Third-Party Tender Offers and Secondary Sales, page 182
42. We note your discussion of the 2019 Tender Offer; however, it is not
clear why the 2020
Tender, as discussed on page F-30 and F-32 (Share-Based Compensation
and Related
Party Transactions, respectively) has not been disclosed here as well.
Please revise to
disclose the terms of the 2020 Tender Offer, or explain why this
information has been
excluded.
Description of Capital Stock, page 186
43. You state that the disclosure in this section is qualified in part by
reference to applicable
provisions of the Delaware General Corporation Law. It is not
appropriate to qualify
prospectus disclosure by reference to information not included in the
prospectus or filed as
an exhibit to the registration statement. Please revise accordingly.
Notes to the Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies
Revenue Recognition, page F-9
44. Please revise to disclose your revenue recognition policy for your
fractional shares
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program.
45. We note from the fee schedule presented on your website that you
charge regulatory
trading fees (e.g., Regulatory and TAF, etc.). Please revise your
policy disclosure to
explain your accounting treatment and clarify where those amounts are
reported in your
statements of operations.
Other Current Assets, page F-15
46. Please revise to separately disclose the amounts of each component
included in the other
assets line item (i.e., user-held fractional shares, securities owned
by Robinhood for the
stock referral program, prepaid expenses, and other receivables, etc.)
and clarify whether
any of the balances include digital assets. For user-held fractional
shares and securities
owned by Robinhood for the stock referral program disclose the
aggregate fair value and
aggregate cost for the periods presented. In addition, quantify gains
and losses on
securities in the stock referral program and clarify where those gains
and losses are
reported in your consolidated statements of operations.
Note 10 - Mezzanine Equity, Common Stock and Stockholders' Deficit
Share-Based Compensation, page F-30
47. We noted your disclosure of the 2020 Tender Offer and the related
accounting
treatment. Please revise to quantify the amount of the remaining
liability after the
repurchase of tendered shares that was reclassified to stockholders
equity. Disclose
where this amount is presented within your consolidated statements of
mezzanine equity
and stockholders' deficit and consider disaggregating your disclosure
on page F-7, if
significant.
48. We note your disclosure regarding the 2019 Tender Offer. Provide a
comparison of the
terms of the 2019 Tender Offer and 2020 Tender Offer, including
waivers of transfer
restrictions, administration assistance and accounting treatment. Tell
us, and revise your
disclosure to clarify, if there were any tender offers or similar
transactions prior to 2019
(e.g., 2018 Secondary Sales, as discussed on page 183) that may have
demonstrated
an established pattern of cash settlement of immature shares and stock
options. Similar to
our comment above, if applicable, disclose where amounts are presented
within your
consolidated statements of mezzanine equity and stockholders' deficit
and consider
disaggregating your disclosure on page F-7, if significant.
Note 13 - Commitments and Contingencies
Contingencies, page F-33
49. We note in certain circumstances (e.g., Potential Resolution of FINRA
Matters on page F-
35 and Robinhood Crypto Anti-Money Laundering and Cyber-Related Issues
on page F-
36) you have recorded accruals representing the bottom of the range of
your probable
losses. If it is reasonably possible that a loss or an additional loss
in excess of the amount
of the loss accrued may have been incurred, revise to disclose an
estimated range;
Vladimir Tenev
Robinhood Markets, Inc.
April 21, 2021
Page 10
otherwise, provide a statement that such an estimate of the possible loss
or range of loss
cannot be made, if true. Refer to ASC 450-20-50-3 through 50-8.
Exhibits
50. Please file the agreement with Amazon Web Services, the agreements with
market-makers
relating to payment for order flow arrangements, and the credit
facilities described on
page 117 as exhibits to the registration statement or, for a particular
agreement, tell us
why this is not required under Item 601(b)(10) of Regulation S-K.
You may contact Marc Thomas, Staff Accountant, at (202) 551-3452 or
Hugh West,
Accounting Branch Chief, at (202) 551-3872 if you have questions regarding
comments on the
financial statements and related matters. Please contact J. Nolan McWilliams,
Attorney-
Advisor, at (202) 551-3217 or Sandra Hunter Berkheimer, Legal Branch Chief, at
(202) 551-
3758 with any other questions.
Sincerely,
FirstName LastNameVladimir Tenev
Division of
Corporation Finance
Comapany NameRobinhood Markets, Inc.
Office of Finance
April 21, 2021 Page 10
cc: D. Scott Bennett
FirstName LastName