Millennials Brokerage Robinhood Faces Multiple Crises
Robin Hood (HOOD) – Get the Class A report from Robinhood Markets, Inc. has long presented itself as a platform that wants to democratize finance for all. Brokerage saw itself as the new wind that would blow and disrupt Wall Street and all of traditional finance. Basically, Robinhood thought of itself as a rebellious spirit.
Now, the platform seems to have lost some of that bravado, and the millennials and Gen Z hobby marketers on social network Reddit, who had contributed so much to its success, no longer speak highly of the firm.
Almost everything seems to be going wrong for the platform co-founded in 2013 by Vlad Tenev and Baiju Bhatt.
Robinhood Stock is plummeting
The retail brokerage firm has plunged 64.47% since its IPO in July, when it opened at $38, and 84.1% since hitting a record high of $85 during the negotiation of August 4th. Shares closed Friday at $13.50.
About $20.47 billion in market capitalization was wiped out in less than a year. The market value is currently lower than other trader-favorite stocks on Reddit’s popular WallStreetbets forum, which made Robinhood popular. GameStop (EMG) – Get GameStop Corp Class A report. has a market cap of $12.59 billion, while AMC Entertainment (CMA) – Get AMC Entertainment Holdings, Inc. Class A Report. market cap is $11.96 billion at last check.
This level of market capitalization makes the company vulnerable to a possible takeover by a competitor, or even a bank, of the very players that the company intended to disrupt. Robinhood shares are certainly cheap compared to last summer’s meme frenzy, which fueled a powerful rally for shares.
Robinhood had 22.7 million people – mostly new investors – having funded Robinhood accounts as of December 31, 2021, a testament to the company’s rapid growth. Since the start of the coronavirus pandemic in 2020, Robinhood has continued to add millions of new accounts as many millennials sign up to trade stocks and options. Over 10 million accounts have been added in the last year alone.
While the company managed to disrupt the entire brokerage industry by cutting fees – ultimately forcing much larger competitors to follow suit – it has struggled to grow, particularly in recent months.
The stock trading app warned in January that it expects first-quarter revenue of less than $340 million, down 35% from 2021, after the number of monthly active users fell to 17.3 million in the fourth quarter of 2021 from 18.9 million in the third quarter.
More pain ahead for Robinhood
Robinhood has become hugely popular among retail investors buying and selling meme stocks and cryptocurrencies, following the hit of COVID-19, forcing governments to release trillions of dollars in cash relief for the unemployed and companies in difficulty.
But that money has dried up with the full reopening of many countries, ending fiscal and monetary stimulus. The Federal Reserve began raising interest rates last month and expects further hikes. The move impacted unprofitable growth stocks, such as Robinhood, more than others.
The brokerage reported a net loss of $423 million for the fourth quarter. Trade-based revenue was $264 million, with options trading bringing in $163 million, while cryptocurrency trading added $48 million and stocks contributed $52 million .
One of the worrying signs is that revenue generated from cryptocurrency trading is steadily declining. RobinHood reported crypto trading revenue of $233 million in Q2 2021, but crypto-based revenue was only $51 million in Q3.
Given the fall in cryptocurrency prices in the first quarter, it’s a safe bet that Robinhood’s digital currency trading revenue will continue to decline.
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In the current environment, marked by numerous macroeconomic and geopolitical risks, it is difficult to imagine the return of retail activity that could fuel the type of subscriber growth that the company has experienced over the past two years.
Robinhood is trying to diversify to stay competitive
With retail trading activity still low, RobinHood is trying to transform itself into a business that offers more than stock, options, and cryptocurrency trading.
The firm has just launched a new debit card, Cash Card, which would allow users to invest their spare change. With this new card, users can round their currency to the nearest dollar and invest it in the assets of their choice.
RobinHood will also offer customers the option to receive their paychecks up to two days in advance via direct deposit, a feature also offered by PayPal Holdings. (PYPL) – Get the report from PayPal Holdings, Inc..
Users can also choose to automatically invest a portion of their paychecks. These new features will be free, the company said.
These products and services are part of an announced strategy that Robinhood will create products to support long-term investing.
“Instant savings (coming soon),” the company promised. “With inflation on the rise and people paying high prices for their everyday needs, from gas to groceries, starting this summer, we will help Cash Card customers beat inflation by offering savings when they shop at some of their favorite places like H&M, Chevron and Chipotle, with many more coming soon.”
In a bid to eventually provide 24/7 stock trading, Robinhood announced on March 29 that it would offer overtime to its customers. The stock trading app will now be available from 7 a.m. to 8 p.m. ET. Prior to the announcement, Robinhood offered to trade 30 minutes before the open and two hours after the close.
A huge crisis of confidence with young traders
It seems that the disenchantment between RobinHood and those who had contributed to its success runs deep. Young traders still can’t seem to forgive the platform for restricting GameStop trading and other stocks caught in the market frenzy in January 2021.
“I wouldn’t trust RH with my retirement money!!!” posted a Reddit user from the WallStreetBets forum, frequented by millions of young traders registered on free brokerage platforms like Webull or Robinhood. The user was commenting on an article saying that RobinHood was about to launch in-app retirement accounts.
“You could have just said ‘money’. Lol,” added another.
“So they can fuck seniors as well as young punks,” said another netizen.
“The same Robinhood that took away the buy button? That Robinhood? posted another.
Feedback is overwhelmingly negative on all Robinhood topics on WallStreetbets, TheStreet observed.