Tenev stated the corporate was working with “overstaffing” in 2021 on the belief that elevated client curiosity in crypto and inventory buying and selling would persist. The corporate had elevated its headcount by 700 staff, or greater than 20 %, monetary paperwork present. Robinhood, which had 3,900 full-time staff on the time of the April announcement, estimates that the 2 rounds of layoffs will have an effect on greater than 1,100 folks, primarily in operations, advertising and program administration roles.
However a deteriorating financial local weather compelled the corporate to rethink its construction. Tenev cited decades-high inflation, which spiked 9.1 % in June, year-over-year, in addition to the crypto market crash, for the cuts. The worth of bitcoin, the main cryptocurrency, has plummeted because it eclipsed $66,000 in late 2021. It was buying and selling under $20,000 in early July, however has since recovered to round $23,000.
Wall Avenue, in the meantime, went by its worst January-June stretch since 1970 because the inflation-driven turmoil unfold throughout almost each sector of the economic system. Even the mighty tech giants, which enriched buyers in the course of the early section of the pandemic with hovering share costs, have been downsized and underperformed the market.
Consequently, buying and selling exercise fell like a Robinhood, as did the corporate’s belongings underneath administration.
“As CEO, I authorized and took duty for our bold personnel journey, that is as much as me,” Tenev stated.
Tech corporations have been recalibrating their hiring plans as rising financial headwinds raised recession fears, prompting layoffs and hiring freezes. These tendencies had been much more pronounced within the cryptoverse: In June, main crypto companies together with Coinbase, BlockFi, and Gemini minimize their workforce by the 1000’s.
Robinhood’s second-quarter earnings report confirmed a 74 % discount in advertising spending and a 56 % enhance in spending on know-how and improvement. “This, coupled with the corporate’s public statements, reveals that Robinhood’s focus is shifting away from person retention,” stated Collin Bogie, senior enterprise associate at fintech agency Zingeroo.
Huge Tech prepares for a attainable recession, scaring different industries
With a mission to “democratize finance for all,” Robinhood was based in 2013 by Tenev and Baiju Bhatt, who stepped down as CEO in 2020. The corporate helped pioneer the fractional funding mannequin the place buyers they will purchase partial shares of shares and cryptocurrencies with out fee. Charge.
Shares by Portion: Fractional Investing Causes a Stampede within the Inventory Market
In 2021, it generated $1.82 billion in internet income, a rise of 89% from the earlier 12 months, and reported as much as 18.9 million month-to-month lively customers.
As of June, it is right down to 14 million month-to-month lively customers, in response to second-quarter monetary outcomes launched Tuesday. It had $318 million in income, down 44 % from the $565 million reported throughout the identical three months in 2021.
A lot of Robinhood’s clientele relied on optimum market circumstances, stated Dennis Kelleher, co-founder of Higher Markets, a nonprofit that advocates for monetary reform.
“Robinhood is exclusive in some methods for having the right mix of a profitable predatory enterprise mannequin at a time when retail investor urge for food to take part within the markets was at an all-time excessive,” Kelleher stated. “Historical past has proven that retail merchants enhance their participation in bull markets and reduce their participation in bear markets.”
The inventory market is in bearish territory. What does that imply?
The S&P 500 fell right into a bear market, that means the index has misplaced 20 % of its worth since its most up-to-date peak in June. A July rally that carried into August lowered the index’s 2022 losses to 12.8 %.
However Robinhood faces different challenges, together with elevated scrutiny from customers and lawmakers.
The New York State Division of Monetary Companies imposed a $30 million positive on Robinhood’s cryptocurrency unit on Tuesday, citing flaws in its transaction monitoring system and cybersecurity system. The sanction marked the primary sanction on cryptocurrency actions in the USA.
Robinhood additionally got here underneath scrutiny after the GameStop frenzy in early 2021, the place retail buyers from on-line communities like Reddit raised the value of so-called meme shares. The corporate froze buying and selling in GameStop shares, citing market volatility. The attorneys basic for the states of New York and Texas, in addition to the US Securities and Trade Fee, had been among the many companies that investigated Robinhood’s actions. The corporate additionally reached a $65 million settlement with the SEC in December 2020 to settle fees of deceptive clients.