Robinhood Markets is slashing about 23% of its full-time staff as the flashy online brokerage continues to reel from a sharp slowdown in customer trading activity.
The job cuts mark the second round of layoffs this year at Robinhood, which in April reduced its staff by about 9%. Together, the two rounds have cut more than 1,000 jobs from the company.
The layoffs come alongside a broader company reorganisation, Vlad Tenev, Robinhood’s chief executive, said in a message posted to the company’s blog. In the statement, Tenev said the previous round of layoffs in April “did not go far enough” in helping the company cut costs.
“Last year, we staffed many of our operations functions under the assumption that the heightened retail engagement we had been seeing with the stock and crypto markets in the Covid era would persist into 2022,” Tenev said in the message. “In this new environment, we are operating with more staffing than appropriate. As CEO, I approved and took responsibility for our ambitious staffing trajectory — this is on me.”
Robinhood also moved up the release of its second-quarter results a day earlier than scheduled, reporting its monthly active users tumbled to 14 million, down 34% from a year earlier. Revenue fell 44% to $318m.
Launched less than a decade ago, Robinhood ushered in a free-stock trading phenomenon during the Covid-19 pandemic, thanks to its easy-to-use, mobile-first online brokerage platform.
By the second quarter of last year — Robinhood’s best, according to public filings — the company boasted more than 21 million active users, who flocked to the app to trade flashy meme stocks, options and cryptocurrencies.
But the pandemic darling has seen its fortunes unwind this year as markets have tumbled and customers are no longer stuck at home like they were during the Covid-19 pandemic. Revenue tied to customers’ trading activity dropped 55% in the latest quarter to $202m.
Robinhood’s stock price plunged this year and finished 2 August at $9.23, down 76% from its initial public offering price last year of $38 a share. Its stock fell 1.6% in recent after-hours trading.
Robinhood scaled up staffing quickly during the Covid-19 pandemic to meet the surge in demand for its services. On the company’s earnings call in April, Tenev said the company grew its headcount to nearly 3,900 in the first quarter of this year from roughly 700 at the end of 2019. The 2 August reduction will bring the headcount to about 2,600.
In his blog post, Tenev said all employees would receive an email and a Slack message with their employment status immediately following Tuesday’s companywide meeting where the layoffs were announced. Employees who were laid off will be able to remain employed through 1 October, Tenev said.
“The reality is that we over-hired, in particular in some of our support functions,” Tenev said later on the call with reporters. He noted that employees in support, operations, marketing and program management would be most acutely affected.
A number of technology companies have laid off employees in recent months as they grapple with a slowdown in growth and the threat of a looming recession. Twitter, Netflix and Tesla are among those that have made staff cuts.
Within the brokerage landscape, Robinhood has found itself more deeply affected by the current market environment. Compared with larger, entrenched players in the industry, Robinhood’s users tend to be younger and have less money in their brokerage accounts. Jason Warnick, Robinhood’s chief financial officer, said Robinhood customers tend to invest in growth stocks and cryptocurrencies. Both categories were hammered by a downturn in markets this year.
In addition to slowing growth, Robinhood has found itself under the watchful eye of regulators. The New York State Department of Financial Services said on 2 August that it imposed a $30m fine on Robinhood’s cryptocurrency trading unit for alleged violations of anti-money-laundering and cybersecurity regulations.
The company, meanwhile, has encountered questions about the future viability of part of its business model, after Securities and Exchange Commission chair Gary Gensler earlier this year outlined a revamp of trading rules that could threaten one of the key ways Robinhood makes money.
As its business has struggled this year, Robinhood has increasingly been considered a takeover target by some market watchers, especially in the highly competitive brokerage industry. In May, one of the biggest names in cryptocurrency, Sam Bankman-Fried, unveiled a roughly $648m investment in Robinhood in exchange for 7.6% of the company’s Class A shares.
Any outside investor, including Bankman-Fried, would face an uphill battle in mounting an aggressive takeover bid for Robinhood, due to a dual-class share structure that gives the majority of voting control to Tenev and Baiju Bhatt, Robinhood’s other co-founder.
Warnick reiterated on the 2 August media call that Robinhood intends to continue as a stand-alone, independent company.
“We’ve got an incredibly strong balance sheet with $6bn in cash and we’ve got a lot of momentum on the product side,” he said. “To the contrary of being acquired, we actually think that we should be looking more aggressively at opportunities to acquire other companies that would help speed our innovation.”
Warnick added that Robinhood plans to roll out tax-advantaged retirement accounts later this year, following its earlier launch of other products including a new debit card. Some former employees, customers and analysts, however, have criticised the brokerage for being too slow to unveil new products that could diversify its revenue stream.
Write to Caitlin McCabe at [email protected]
This article was published by The Wall Street Journal, part of Dow Jones