Robinhood plans to fire almost one-quarter of staff to cut costs after a disappointing first half.
As trading cooled, the cost of living increased, and interest rates rose, and Robinhood’s share price plummeted more than 70% since last July.
Insider Intelligence publishes hundreds of insights, charts, and forecasts on the Banking industry. Learn more about becoming a client.
The news: A $30 million fine and plans to lay off almost one-quarter of its workforce are the latest signs that digital broker Robinhood is struggling.
Insider Intelligence
Bad news comes in threes
1. More job cuts:
As part of a restructuring, the trading app will close two offices and slash its headcount by around 23%, or about 780 people. The move follows redundancies made in April when Robinhood let go 9% of its staff.CEO Vlad Tenev blamed the “deterioration of the macro environment,” inflation, and a broader cryptocurrency crash for declining trading volumes.The firm will incur $30 million to $40 million for the restructuring and layoffs and $15 million to $20 million related to office closures, per the same filing.
2. Disappointing earnings:
The firm’s Q2 earnings highlighted its changing fortunes over the past year. Revenues declined 44% year-over-year (YoY) to $318 million.Robinhood blamed the “volatile market environment” for falling monthly active users which dropped by roughly one-third to 14 million for June 2022 compared with 21.3 million in the second quarter of 2021.
3. Slapped with a fine:
Robinhood was also fined $30 million by New York’s financial regulator for “significant failures” in keeping anti-money laundering and cybersecurity rules.The firm must also retain an independent consultant to evaluate compliance.
What’s behind the decline? Robinhood was hugely successful during Covid lockdowns due to a trading frenzy among amateur investors. But trading cooled as the cost of living increased and interest rates rose, and its share price has plummeted more than 70% since last July.
This year, Robinhood has tried to diversify its offering to counter tumbling volumes, with limited success. Various efforts include:
A new debit product to replace an earlier debit card.Offering Individual Retirement Accounts (IRAs) and support for pension plans.Extending trading hours.Expansion into crypto including meme tokens, growth in Europe, and a new crypto wallet.
Robinhood’s extensive efforts to expand its offerings have appeared increasingly desperate as it continues to pursue younger users. It’s not been helped by a wider crypto market slump. But it has also suffered from its narrow focus on a single age demographic and on notoriously volatile products, like crypto and app-based trading.
The big takeaway: Persistent missteps and a wider decline in trading activity have combined to hurt Robinhood. Going forward, digital brokers need to explore revenue-generating avenues more resistant to downturns. If Robinhood is unable to pull out of the ongoing nosedive, it may be better served by seeking a buyout before the year is over. FTX has already been linked to a takeover. If not, Robinhood needs to hunker down, cut costs, and wait for the slumping retail trading market to pick up.
Want to read more stories like this one? Here’s how you can gain access:
Join other Insider Intelligence clients who receive Banking forecasts, briefings, charts, and research reports to their inboxes each day. >> Become a ClientExplore related topics more in depth. >> Browse Our Coverage
Current subscribers can access the entire Insider Intelligence content archive here.