Image Source: San Francisco Chronicles
Due to excessive inflation, trading platform Robinhood Markets Inc. is laying off close to a quarter of its workforce.
Due to the collapse of a pandemic trading bubble, Robinhood is cutting close to a fourth of its workforce. The app-based brokerage laid off 23 percent of its workforce in an earnings report released on Tuesday, a day earlier than expected and above analyst estimates, as it reported a 44 percent drop in revenue due to weak trading activity.
According to the businesses, the current economic situation has decreased commercial activity, which had soared at the height of the pandemic.
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 as revenue from equity, options, and cryptocurrency trading more than halved from $565 million a year earlier.
In addition to the 9% of full-time employees laid off earlier this year, the company announced a new round of layoffs affecting 780 workers.In order to encourage better cost discipline, it will also modify its organizational structure.
The total operational costs for Robinhood increased 22% over the same period last year. According to Robinhood, the reorganization will cost the company $30 million to $40 million.
The business reported a $295 million net loss. According to Refinitiv IBES statistics, after deducting the restructuring costs, Robinhood reported a loss of 32 cents per share versus analyst forecasts of a loss of 37 cents per share.
The most recent layoffs, which are in addition to those that were already announced this year, will affect 780 employees. All employees would receive “an email and a Slack message with your status—with resources and help if you are leaving,” according to CEO Vladimir Tenev.
Employees, known as “Robinhoodies” in the California-based company, will be allowed to remain in their positions until October 1, will be given a severance package, and will be assisted in finding other work.
During the COVID lockdowns, amateur traders found Robinhood’s commission-free trading to be incredibly appealing, and the number of account holders doubled. However, the rising cost of living and higher interest rates, which have affected global markets and sent cryptocurrencies plunging, have alarmed its customer base. According to Reuters, the company’s 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 online brokerage is to “democratize finance for everybody,” but in January 2021, it made news for limiting the purchase of shares in the US gaming business GameStop, which infuriated Americans who were buying the company’s stock to drive up the price.
At a US congressional hearing, Mr. Tenev expressed regret to the audience for the action, which, according to the senators, called into question the fairness of the financial markets.
The platform has also come under fire for exposing novices to riskier items like cryptocurrency and meme stocks, shares that gain popularity via social media.
In order to achieve “better cost discipline,” the corporation claimed it would restructure the organization and give general managers “wide control” over each of its various operations.
According to Mr. Tenev, the adjustment will “flatten hierarchies” and “eliminate unnecessary functions and responsibilities.”
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It was supposed to declare profits on August 3, but after writing a blog post detailing the layoffs and reorganization, it posted them on August 2.
In after-hours trading, Robinhood’s shares were down roughly 1% to $9.15.
The Emergence of Robinhood
During the COVID-19 pandemic, young investors who were trading from home on cryptocurrencies and equities like GameStop Corp found Robinhood to be popular due to its user-friendly interface.
However, decades of high inflation and increasing interest rates, which have depleted global markets of liquidity and sent cryptocurrencies lower, have alarmed its consumer base.
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 firms, such as Celsius Network and Voyager Digital, failed amid the broader crypto crash.