Image Source: San Francisco Chronicles
Due to the declining value of cryptocurrencies. The trading platform Robinhood Markets Inc. is laying off close to a quarter of its workforce.
Value of Cryptocurrency Declining
As a result of a slumping pandemic trading boom, Robinhood is laying off close to a quarter of its workforce. The app-based brokerage laid off 23% of its workforce as it reported a 44% drop in revenue due to weak trading activity on Tuesday. It was a day earlier than expected and exceeding analyst expectations.
The businesses claimed that the economy had dampened trading 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 for the second quarter ended June 30 of $318 million, down from $565 million a year earlier, as revenue from equity, options, and cryptocurrency trading more than halved.
In addition to the 9% of full-time employees laid off earlier this year. The company announced a new round of layoffs affecting 780 employees. It will also alter the organizational structure to promote greater cost discipline.
In comparison to the same quarter last year, Robinhood’s total operating costs increased by 22%. Robinhood estimated that the reorganization would cost the company $30–$40 million.
The business reported a net loss of $295 million. According to Refinitiv IBES data, Robinhood reported a loss of 32 cents per share after adjusting for restructuring costs. It was below analyst expectations of a loss of 37 cents per share.
In addition to the earlier-announced cuts, the most recent ones will affect 780 employees. Vladimir Tenev, the CEO, announced that every employee would get “an email and a Slack message with your status—with resources and support if you are leaving.”
He added that employees, known as “robinhoodies” in the California-based company, would be allowed to remain in their jobs until October 1, would be given a severance package, and would be assisted in finding new employment.
Impact of COVID Lockdown
During the COVID lockdowns, the number of account holders doubled as a result of the commission-free trading offered by Robinhood to novice traders. The rising cost of living and higher interest rates, which have negatively impacted global markets. They have sent cryptocurrencies plunging, have alarmed its customer base, though. Reuters said that in June 2022, there were 14 million monthly active users. It was down from 21.3 million in the second quarter of 2021, according to Reuters.
The goal of the online brokerage is to “democratize finance for all,” but in January 2021, it made headlines for prohibiting the purchase of shares in the US video game retailer GameStop, which infuriated Americans who were trying to drive up the price of the stock by buying it.
At a US congressional hearing, Mr. Tenev offered an apology to the audience after lawmakers claimed that the action had called into question the fairness of the financial markets.
Additionally, the platform has come under fire for exposing novices to risky products like cryptocurrencies and meme stocks, which are shares that gain popularity via social media.
General managers would assume “broad responsibility” for each of the company’s individual businesses as part of a reorganization to achieve “greater cost discipline,” according to the company.
The modification, according to Mr. Tenev, will “flatten hierarchies” and “remove redundant roles and positions.”
After writing a blog post about the layoffs and reorganization, it announced its earnings on August 2 instead of the original August 3.
In after-hours trading, shares of Robinhood were down almost 1% to $9.15.
The rise of Robinhood Market Inc.
Young investors trading from home on cryptocurrencies and stocks like GameStop Corp during the COVID-19 pandemic. These were drawn to Robinhood’s user-friendly interface.
However, decades of high inflation and rising interest rates, which have dried up the liquidity in global markets. This have caused cryptocurrencies to fall, have alarmed its customer 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 begun laying off employees in advance of an anticipated recession. A few crypto firms, such as Celsius Network and Voyager Digital, also went under during the wider crypto crash.