Why is Robinhood’s stock declining? Investors are considering selling.

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Stock in brokerage app

Robinhood Markets

– the company whose mission statement is to democratize finance for all – fell sharply on Thursday. Early investors plan to sell shares. The large declines in stocks are baffling but, like the company’s first day of trading, which didn’t go very well, Thursday’s drop is not a big deal.

Shares were down 9.6% to $ 63.65 in Wednesday morning trading. the

S&P 500

was up 0.3%, while the

Dow Jones Industrial Average

had gained 0.5%.

The drop follows a Robinhood file (ticker: HOOD) indicating early investors are forecasting around 98 million shares. There are more than a dozen selling shareholders, including tech private equity firm Andreessen Horowitz. All appear to be the first investors who received convertible notes that converted into common stock when the company’s initial public offering ended.

It is not uncommon for private equity investors to sell shares of public companies after an IPO. And Robinhood doesn’t get any money from those sales.

The big sale of stocks is a double-edged sword. It’s a huge block of stocks that will put pressure on stocks for a few days. This is the bad news. But the free float – Robinhood shares available for trading by anyone – is currently only around 55 million shares. Selling shares will significantly increase the free float. This will help mitigate trading volatility in the coming weeks.

The free float in companies that have recently completed an IPO is often low. There are restrictions on when existing shareholders can sell. Typically, a large portion of the stock cannot be sold for 180 days.

There are approximately 720 million Class A Shares outstanding and approximately 130 million Class B Shares outstanding. Class B shares have 10 votes per share, while Class A shares have 1 vote per share. Class B shares are primarily owned by the founders and give them control of approximately 64% of the voting rights of all shares.

Millions of shares are also represented in stock options and restricted share units. Getting an accurate stock tally for companies right after an IPO is a chore. Robinhood was not immediately available to comment on the number of shares or further details on the selling shareholders.

The Robinhood action got off to a volatile, but successful start. The shares fell 8.4% to $ 34.82, down from its IPO price of $ 38 on July 29 on its first day of trading. Shares have risen on all four trading days since then, including a massive 50.4% jump on Wednesday.

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