Robinhood Pre-IPO Access is a Game Changer

This article is not about the Robinhood IPO (HOOD). Personally, I think the overinflated price ($38-$42 a share) will start dropping right out of the gate. I’m going to project them at under $20 by day three. The valuation ($35 billion) is too high and PFOF is on the way out

The game changer I’m talking about is the pre-IPO service that Robinhood is now offering its users. It’s one more step in the democratization of financial markets, a wildcard that will disrupt the world of accredited investors. Joe Public is now a player on Wall Street.

I’m a Robinhood user myself, and I currently have pre-access to four upcoming IPOs. One is Robinhood itself, which I’m passing on. The other three are Riskified (RSKD), Outbrain (OB), and Duolingo (DUOL). Here’s my take on each of these:

Option #1: Duolingo at $85 to $95 per Share

With a realistic valuation of $3.1 to $3.4 billion, Duolingo (DUOL) might be the best buy on the IPO market this year. According to TechCrunch, the company should be worth closer to $4.2 billion, so this is a strong buy recommendation from me.

Duolingo is a widely popular language app with over forty million active monthly users. The company generates 72% of revenue from subscriptions, so they’re not reliant on advertising dollars. They’re offering 5.1 million shares in the IPO which will generate up to $485 million.

I’ve had my eyes on this company for some time. Based in Pittsburg, Duolingo has been around since 2011, so they’re not new. In 2016, they broke the $1 million annual revenue mark for the first time. Last year (2020), they pulled in $161 million. This is a solid investment.

Option #2: Riskified at $18 to $20 per Share

Despite the relatively low price, I’m not buying into Riskified (RSKD). As SaaS developers of anti-fraud and chargeback prevention software for eCommerce platforms, they have yet to prove they can turn a profit. In 2020, the Israel-based company lost $7.2 million.

That loss margin is expected to grow this year to anywhere from $19.4 million to $24.8 million. They have a solid customer base that includes big names like Ticketmaster and Prada, but I can’t shake the nagging feeling that this IPO is a desperation move to stop the bleeding.

After Robinhood’s pre-IPO success with Figs, Inc (FIGS) and Clear Secure Inc (YOU), there will be lots of newbies jumping on this because its affordable. I’m going to caution against that. Even if the price holds at $18 at the outset, this is not a good long-term investment.

Option #3: Outbrain at $24 to $26 per Share

I never get emotional about stock, but I have a good feeling about Outbrain (OB). They made a $10.7 million profit in the first quarter this year, which is already more than double the $4.4 million they netted in all of 2020. Those numbers excite me.

Outbrain has been around since 2006. They are essentially a native advertising platform that also works with publishers to optimize traffic and click-through rates. The ad sector alone was estimated at $85 billion in 2020. By 2025, it’s expected to be over $400 billion.

This one is a gamble because they’re competing with another platform called Taboola (TBLA) for market dominance in this space. Taboola opened at $10 with their IPO back in October. They’re sitting at $8.90 right now. I expect better from Outbrain. I’m buying.

Some Words of Caution about Pre-IPO Stocks

Cautioning against speculation in today’s market may seem a bit trite, but I’d be remiss not to throw this in for those inexperienced with pre-IPO offerings. They’re a gamble. Opening prices are estimated and some are higher than they should be. Proceed carefully.

Review the financials. They’re not the only variable driving the stock price, but they will tell you a lot about the sustainability of the company you’re planning on investing in. There are no performance charts to analyze, so you’ll have to dig a little deeper to get what you need.

Robinhood’s pre-IPO service is a great way for non-accredited investors to get involved at a level that’s never been possible before. That’s awesome, but it will cause some chaos. Expect volatility. Don’t gamble what you can’t afford to lose. Bet correctly and you could win big.