Tenev said that the company has “staffed more than appropriate” in 2021 assuming that consumer interest in cryptocurrencies and stock trading will continue to grow. Financial documents showed that the company increased its headcount by 700 employees, or more than 20 percent. 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 jobs.
But the deteriorating economic climate forced the company to rethink its structure. Tenev cited decades-old high inflation — which rose by 9.1 percent in June, year-over-year — as well as the crash in the cryptocurrency market, for the cuts. The value of Bitcoin, the leading cryptocurrency, has plummeted since it topped $66,000 in late 2021. It was trading at less than $20,000 in early July, but has returned to nearly $23,000.
Meanwhile, Wall Street passed its worst January-June stretch since 1970 as inflation-induced turmoil spread to nearly every part of the economy. Even the powerful tech giants, who enriched investors during the early phase of the pandemic with stock price hikes, are downgraded, doing worse than the market.
As a result, Robinhood’s trading activity, as well as the assets under management of the company, decreased.
“As CEO, I have agreed and taken responsibility for our ambitious hiring path — and that is on me,” Tenev said.
Tech companies have readjusted their hiring plans as rising economic winds fueled recession fears, leading to layoffs and hiring freezes. These trends were most evident in the crypto verse: in June, prominent crypto companies including Coinbase, BlockFi and Gemini reduced their workforce by the thousands.
Robinhood’s second-quarter earnings report showed a 74 percent decrease in marketing expenses and a 56 percent increase in spending on technology and development. “This, along with the company’s public statements, shows that Robinhood’s focus is shifting away from retaining users,” said Colin Bogey, senior business assistant at fintech startup Zingeroo.
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With a mission to “democratize finance for all,” Robinhood was founded in 2013 by Tenev and Baiju Bhatt, who are stepping down as CEO in 2020. The company has helped pioneer a fractional investment model where investors can buy partial shares of stock. And cryptocurrencies without commission fees.
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In 2021, it generated $1.82 billion in net profit, an 89 percent increase over the previous year, and recorded 18.9 million monthly active users.
As of June, it’s down to 14 million monthly active users, according to second-quarter financial results released Tuesday. Its revenue was $318 million, down 44 percent from the $565 million reported during the same three months of 2021.
Dennis Keeler, co-founder of Better Markets, a nonprofit that advocates for financial reform, said many of Robinhood’s clients are dependent on optimal market conditions.
“Robinhood is unique in some ways for having the perfect blend of a successful predatory business model at a time when the desire of retail investors to participate in the markets is 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.”
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The S&P 500 slipped into a bear market – meaning the index has lost 20 per cent of its value since its last peak – in June. A July rally that extended into August cut the index’s losses in 2022 to 12.8 percent.
But Robinhood faces other challenges, including heightened scrutiny from both users and lawmakers.
The New York State Department of Financial Services on Tuesday imposed a $30 million fine on Robinhood’s crypto unit, citing failures in its transaction monitoring and cybersecurity system. The penalty was the first for cryptocurrency activities in the United States.
Robinhood also came under scrutiny after the GameStop craze in early 2021, as retail investors from online communities like Reddit raised the price of “meme shares.” The company has suspended the trading of GameStop shares, due to market volatility. Attorneys general for New York and Texas, as well as the US Securities and Exchange Commission, were among the agencies that investigated Robinhood’s actions. The company also reached a $65 million settlement with the Securities and Exchange Commission in December 2020 to settle customer misleading charges