Image Source: San Francisco Chronicles
Due to the declining crypto market, trading platform Robinhood Markets Inc. is laying off nearly a quarter of its workforce.
As a result of a collapse in the epidemic trading boom, Robinhood is eliminating about a quarter of its workforce. The app-based brokerage laid off 23 percent of its employees 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.
The corporation said that the economy had dampened trading activity, which had soared during the height of the pandemic.
According to a statement with the US Securities and Exchange Commission, the Menlo Park, California-based brokerage reported net revenue of $318 million for the second quarter ended 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 another round of layoffs affecting 780 people.To promote more cost discipline, it will also modify its organizational structure.
The total operational costs for Robinhood increased by 22% during the same period last year. According to Robinhood, the reorganization will cost the company $30–$40 million.
The corporation reported a net loss of $295 million. According to Refinitiv IBES statistics, after deducting the restructuring costs, Robinhood recorded a loss of 32 cents per share compared to analyst forecasts of a loss of 37 cents per share.
The most recent layoffs, which are in addition to the ones that were already announced this year, will affect 780 employees. Vladimir Tenev, the CEO, announced that every employee would 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 permitted to remain in their positions until October 1, be given a severance package, and be assisted in finding other employment.
During the COVID lockdowns, the number of account holders doubled as a result of the commission-free trading that Robinhood offered to novice traders. However, the rising cost of living and higher interest rates, which have negatively impacted global markets and sent cryptocurrencies plunging, have alarmed its consumer base. According to Reuters, the 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 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 bought the company’s stock to drive up the price.
At a US congressional hearing, Mr. Tenev expressed regret to the audience after senators said the action had called into question the fairness of the financial markets.
The platform has also come under fire for introducing novices to riskier items like cryptocurrencies and meme stocks, which are shares that gain popularity via social media.
The corporation said that as part of its effort to achieve “better cost discipline,” it will restructure the organization by giving general managers “wide responsibility” for each of its various operations.
According to Mr. Tenev, the adjustment will “flatten hierarchies” and “eliminate unnecessary responsibilities and positions.”
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 instead.
In after-hours trading, Robinhood’s shares were down about 1% to $9.15.
Robinhood through the pandemic years
During the COVID-19 pandemic, young investors who were trading from home on cryptocurrencies and equities like GameStop Corp found Robinhood to be popular thanks to its user-friendly interface.
However, decades of high inflation and rising interest rates, which have depleted the world’s 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 staff in advance of a predicted recession. Meanwhile, a few crypto firms, such as Celsius Network and Voyager Digital, failed amid the broader crypto crash.