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Robinhood to slash headcount by 23% as retail trading bubble bursts

by Ozva Admin

Robinhood is laying off nearly a quarter of its staff as the company that harnessed the coronavirus-pandemic-era retail boom and promised to revolutionize brokerage disputes with a decline in customer activity.

The company announced in a blog post on Tuesday that it was cutting its headcount by 23 percent, or about 780 employees, as part of a reorganization that would also result in the closure of two of its offices.

“Today we will part ways with many incredibly talented people in an extremely challenging macro environment.” Robin Hood co-founder Vlad Tenev wrote.

Shares of the brokerage fell about 1 percent in after-hours trading.

At the time of its initial public offering last summer, Robinhood boasted that 50 percent of retail commerce accounts opened in the US from 2016-21 were on their platform. But the lockdown-and-stimulus-fueled trading boom has run out of steam, with Robinhood shares down 50 percent since the start of the year.

The announcement marked the latest round of layoffs for the seven-year-old runner, who in April said she cut 9 percent of full-time staff. Robinhood said employees who lost their jobs would have the option to stay until Oct. 1 and have no further plans to downsize.

Trading volumes have continued to decline. “We have seen a further deterioration of the macro environment, with inflation at 40-year highs accompanied by a broad crypto market decline,” Tenev wrote.

In a call with reporters, Tenev said he expected trading conditions in 2020 and 2021 to “last longer than they turned out to be.”

While announcing the layoffs, Robinhood also released its quarterly earnings a day earlier than expected. It reported $318 million in revenue, down 44 percent from the $565 million during the same quarter last year, and below analyst expectations of $321 million.

Its net loss for the quarter was $295 million compared to the $308 million loss analysts had expected and 41 percent less than last year’s $502 million loss. Net loss per share was $0.34, compared to a loss of $2.16 per share in the same quarter last year.

Most of their income came from paying for the flow of orders, the controversial practice of selling client trades to market makers that has been highlighted by the US Securities and Exchange Commission for review. In the three months to June 30, sales order flow revenue fell 7 percent to $202 million.

The hardest hit teams were those that expanded rapidly when trading volumes increased, such as customer support and marketing. “This is us reacting to casualties [trading] volumes,” said Jason Warnick, chief financial officer of Robinhood.

Active users on the platform fell by nearly 2 million to 14 million in the second quarter of 2022, extending its decline as interest in retail waned. Robinhood closed 2021 with 17.3 million active users.

During the quarter, the brokerage added just 100,000 funded accounts, accounts with cash deposits, bringing the total to 22.9 million. Interest rate increases were a bright spot, as interest income on account balances rose 35 percent to $74 million.

Robinhood customers suffered heavy losses during the quarter. Assets under custody plunged 31 percent to $64.2 billion from the previous quarter, following a sharp sell-off in tech stocks and cryptocurrencies, which are popular holdings among Robinhood clients.

The broker’s poor performance has prompted suggestions it could be acquired. In April, the billionaire founder of cryptocurrency exchange FTX, Sam Bankman-Fried, took a 7.6 percent stake in the company for a value of $648mn. FTX said no formal merger and acquisition talks have taken place.

Warnick rejected the idea that Robinhood would be interested in merging with another company: “As opposed to being acquired, we think we should more aggressively look at acquiring other companies.”

Earlier on Tuesday, cryptocurrency business Robinhood agreed to pay a $30 million settlement to the New York State Department of Financial Services, which alleged the brokerage had made “significant failures” in compliance, such as cybersecurity. , anti-money laundering and customer protection.

The job cuts won’t affect the anti-money laundering team, Robinhood said, an effort to “do the right thing” and improve compliance after being repeatedly at fault with regulators since its founding.

Multiple tech companies have laid off employees amid interest rate hikes over recession fears. The Robinhood layoffs are “understandable and a manifestation of the post-Covid fintech hangover,” said Dan Dolev, managing director of Mizuho Securities.

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