Tenev said the company operated with “more staffing than appropriate” in 2021 under the assumption that heightened consumer interest in cryptocurrency and stock trading would persist. The company had increased its head count by 700 employees, or more than 20 percent, financial documents show. Robinhood, which had 3,900 full-time staffers at the time of the April announcement, estimates that the two rounds of layoffs will affect more than 1,100 people, mostly in operations, marketing and program management functions.
But a deteriorating economic climate forced the company to rethink its structure. Tenev cited decades-high inflation — which soared 9.1 percent in June, year over year — as well as the crypto market meltdown, for the cutbacks. 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 upheaval spread across nearly every part of the economy. Even the mighty tech giants, which enriched investors during the early phase of the pandemic with soaring share prices, were brought low, performing worse than the market.
As a result, trading activity dropped a Robinhood, as have assets under the company’s management.
“As CEO, I approved and took responsibility for our ambitious staffing trajectory — this is on me,” Tenev said.
Technology companies have been recalibrating their hiring plans as growing economic head winds heightened recession fears, prompting layoffs and hiring freezes. Those trends were even more pronounced in the crypto-verse: In June, prominent cryptocurrency companies including Coinbase, BlockFi and Gemini cut their workforce by the thousands.
Robinhood’s second-quarter earnings report showed a 74 percent reduction in marketing expenses and 56 percent more spending in technology and development. “This, along with the firm’s public statements, shows that Robinhood’s focus is shifting away from retaining users,” said Collin Bogie, senior business associate at fintech start-up Zingeroo.
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With a mission to “democratize finance for all,” Robinhood was founded in 2013 by Tenev and Baiju Bhatt, who stepped down as CEO in 2020. The company helped pioneer the fractional investing model where investors can buy partial shares of equities and cryptocurrencies without commission fees.
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In 2021, it generated $1.82 billion in net revenue, an 89 percent jump from the year before, 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 its second-quarter financial results released 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 clients 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 for participating 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 down markets.”
The stock market is in bear territory. What does that mean?
The S&P 500 slipped into a bear market — meaning the index lost 20 percent of its value since its most recent peak — in June. A July rally that has stretched into August has cut the index’s 2022 losses 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 cryptocurrency unit, citing failures in its transaction monitoring system and cybersecurity system. The penalty marked the first sanction on 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 drove up the price of “meme stocks.” The company froze trading of GameStop shares, citing market volatility. New York and Texas state attorneys general, 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 SEC in December 2020 to settle charges of misleading customers