Image Source: San Francisco Chronicles
Due to the declining cryptocurrency market, trading platform Robinhood Markets Inc. will lay off close to a quarter of its workforce.
Due to a collapse in the epidemic trading boom, Robinhood is cutting up to a fifth of its personnel. On Tuesday, the app-based brokerage laid off 23 percent of its workforce as it reported a 44 percent drop in revenue due to weak trading activity, a day earlier than expected earnings report that exceeded analyst forecasts.
According to the corporation, trading activity, which had soared at the height of the pandemic, has decreased as a result of the economic situation.
According to a filing with the US Securities and Exchange Commission, the Menlo Park, California-based brokerage reported net revenue of $318 million for the second quarter that ended on June 30, despite a more than halving in revenue from equity, options, and cryptocurrency trading from the same period last year, when it had generated $565 million.
In addition to the 9% of full-time employees laid off earlier this year, the company announced another round of layoffs affecting 780 workers.Additionally, in order to promote greater cost discipline, it will modify its organizational structure.
The second quarter saw a 22% increase in Robinhood’s overall operating costs over the same period in 2017. Robinhood estimated that the cost of the reorganization would be $30–$40 million for the company.
A $295 million net loss was reported by the corporation. In comparison to analyst forecasts of a loss of 37 cents per share, Robinhood reported a loss of 32 cents per share after adjusting for restructuring costs, according to Refinitiv IBES data.
In addition to the cuts that were previously announced this year, the most recent ones will affect 780 employees. All employees, according to CEO Vladimir Tenev, will receive “an email and a Slack message with your status—with resources and help if you are leaving.”
He said that employees, known as “Robinhoodies” at the California-based company, will be allowed to remain in their positions until October 1, be given a severance package, and be assisted in finding other employment.
The number of account holders doubled during the COVID lockdowns as a result of the commission-free trading offered by Robinhood to novice traders. However, the rising cost of living and higher interest rates, which have affected global markets and caused cryptocurrencies to fall, have alarmed its customer base. According to Reuters, the company’s number of monthly active users also appeared to have decreased by around a third, from 21.3 million in the second quarter of 2021 to 14 million in June 2022.
The goal of the internet brokerage is to “democratize finance for everybody,” but in January 2021, it made news for prohibiting the purchase of shares in the US video game retailer GameStop. This outraged Americans who were buying the company’s stock to drive up the price.
At a US congressional hearing, when lawmakers claimed the action had called into doubt the impartiality of the financial markets, Mr. Tenev offered his sincere apologies to the clients.
The platform has also come under fire for introducing novice users to riskier items like cryptocurrency and meme stocks, shares that gain popularity via social media.
General managers will assume “wide responsibility” for each of the company’s different companies, the company announced, as part of a restructuring effort to achieve “better cost discipline.”
Mr. Tenev claimed that the modification would “flatten hierarchies” and “eliminate unnecessary functions and responsibilities.”
After writing a blog post regarding the layoffs and reorganization, which were supposed to happen on August 3, it announced its earnings a day early.
As of $9.15 in after-hours trading, Robinhood’s shares were down almost 1%.
Robinhood through the years
During the COVID-19 pandemic, young investors who were trading stocks like GameStop Corp. from home became fans of Robinhood due to its user-friendly design.
However, due to decades of high inflation and rising interest rates, which have dried up the world’s markets’ liquidity and caused cryptocurrencies to fall, their consumer base has been shaken.
Along with the cryptocurrency exchange Coinbase Global Inc., the buy-now-pay-later business Klarna, and the NFT platform OpenSea, Robinhood is one of many fintech startups that have started cutting jobs in advance of an anticipated recession. Meanwhile, a few crypto companies, such as Celsius Network and Voyager Digital, collapsed during the broader crypto crash.