Robinhood, the trading app that gained popularity for its intuitive stock and cryptocurrency features, is cutting nearly a quarter of its workforce due to declining revenue and cryptocurrency values.
Robinhood cuts 23 percent of its workforce amid crypto meltdown
Tenev said the company was operating with “more staffing than appropriate” in 2021 under the assumption that increased consumer interest in cryptocurrency and stock trading would persist. The company had increased the number of employees by 700 employees, or more than 20 percent, financial documents show. Robinhood, which had 3,900 full-time employees at the time of the April announcement, estimates the two rounds of layoffs will affect more than 1,100 people, mostly in operations, marketing and program management.
But a worsening economic climate forced the company to reconsider its structure. Tenev cited decades-high inflation — which rose 9.1 percent in June, year over year — as well as the meltdown of the crypto market, for the cuts. The value of bitcoin, the leading cryptocurrency, has plunged since eclipsing $66,000 in late 2021. It was trading below $20,000 in early July, but has since bounced back to around $23,000.
Wall Street, meanwhile, limped through its worst January-to-June stretch since 1970 as inflation-driven turmoil spread across nearly every part of the economy. Even the mighty tech giants, which enriched investors in the early phase of the pandemic with skyrocketing stock prices, were brought down and underperformed the market.
As a result, trading activity fell a Robinhood, as did assets under the company’s management.
“As CEO, I approved and took responsibility for our ambitious staffing trajectory – this is on me,” said Tenev.
Tech companies have recalibrated their hiring plans as growing economic headwinds fueled recession fears, prompting layoffs and hiring freezes. These trends were even more pronounced in the cryptoverse: In June, prominent cryptocurrency companies including Coinbase, BlockFi and Gemini cut their workforces by the thousands.
Robinhood’s second quarter earnings report showed a 74 percent reduction in marketing costs and 56 percent more spending on technology and development. “This, along with the firm’s public statements, shows that Robinhood’s focus is shifting away from user retention,” said Collin Bogie, senior business associate at fintech startup Zingeroo.
With a mission to “democratize finance for everyone,” Robinhood was founded in 2013 by Tenev and Baiju Bhatt, who stepped down as CEO in 2020. The company helped pioneer the fractional investment model where investors can buy fractions of stocks and cryptocurrencies without commission fees.
In 2021, it generated $1.82 billion in net revenue, an 89 percent jump from the previous year, and reported as many as 18.9 million monthly active users.
As of June, it was down to 14 million monthly active users, according to financial results for the second quarter released on Tuesday. It had $318 million in revenue, down 44 percent from the $565 million reported during the same three months of 2021.
Many of Robinhood’s clientele relied on optimal market conditions, said Dennis Kelleher, co-founder of Better Markets, a nonprofit that advocates for financial reform.
“Robinhood is unique in some ways for having the perfect combination of a successful predatory business model at a time when retail investors’ appetite to participate in the markets was at an all-time high,” Kelleher said. “History has shown that retail traders increase their participation in bull markets and decrease their participation in bear markets.”
The S&P 500 slipped into a bear market — meaning the index has lost 20 percent of its value since its most recent peak — in June. A rally in July that has stretched into August has cut the index’s 2022 losses to 12.8 percent.
But Robinhood faces other challenges, including increased scrutiny from both users and lawmakers.
The New York State Department of Financial Services on Tuesday imposed a $30 million fine on Robinhood’s cryptocurrency unit, citing flaws in its transaction monitoring and cybersecurity systems. The penalty marked the first sanction against cryptocurrency activities in the United States.
Robinhood also came under scrutiny after the GameStop frenzy in early 2021, where retail investors from online communities like Reddit boosted the prices of so-called meme stocks. The company froze trading in GameStop shares, citing market volatility. The attorneys general of New York and Texas, as well as the US Securities and Exchange Commission, were among the agencies investigating Robinhood’s actions. The company also reached a $65 million settlement with the SEC in December 2020 to settle allegations of misleading customers
