Robinhood (HOOD) has long presented itself as a platform that wants to democratize finance for all. The brokerage saw itself as the new wind that would blow and disrupt Wall Street and all of traditional finance. Basically, Robinhood saw itself as a rebellious spirit.
Now the platform seems to have lost some of that bravado, and the millennials and Gen Z amateur traders on the social network Reddit, who had contributed so much to its success, no longer speak highly of the firm.
Almost everything seems to be going wrong for the platform co-founded in 2013 by Vlad Tenev and Baiju Bhatt.
Robinhood Stock Is in Freefall
The retail brokerage firm has plunged 64.47% since its IPO in July, when it opened at $38, and 84.1% since hitting a record high of $85 during last August 4 trading. Shares closed Friday at $13.50.
About $20.47 billion in market capitalization has been wiped out in less than a year. The market value is currently below other trader-favorite stocks on Reddit's famed WallStreetbets forum, which made Robinhood popular. GameStop (GME) has a market cap of $12.59 billion, while AMC Entertainment's (AMC) market capitalization is at $11.96 billion at last check.
This level of market capitalization makes the firm vulnerable to a potential takeover by a rival, or even a bank, the very players that the firm intended to disrupt. Robinhood's stock is certainly cheap compared to last summer's meme frenzy, which fueled a powerful rally for stocks.
Robinhood had 22.7 million people -- mostly first-time investors -- having funded Robinhood accounts as of December, 31 2021, which is a testament to the company's rapid growth. Since the start of the coronavirus pandemic in 2020, Robinhood has continued to add millions of new accounts, as many millennials sign up to trade stocks and options. More than 10 million of the accounts were added in last year alone.
While the company managed to disrupt the entire brokerage industry by cutting fees -- ultimately forcing much larger competitors to follow suit -- it has struggled to grow, especially in recent months.
The stock-trading app warned in January that it anticipates first-quarter revenue of less than $340 million, down 35% compared with 2021, after monthly active users fell to 17.3 million in the fourth quarter of 2021 from 18.9 million in the third quarter.
Robinhood
More Pain Ahead for Robinhood
Robinhood became hugely popular among retail investors buying and selling meme stocks and cryptocurrencies, after COVID-19 hit, forcing governments to unlocking trillions of dollars in cash assistance for the unemployed and struggling businesses.
But that money has dried up with the full reopening of many countries, ending fiscal and monetary stimulus. The Federal Reserve began raising interest rates last month and expects further hikes. The move has impacted unprofitable growth stocks, such as Robinhood, more than other.
The brokerage reported a net loss of $423 million for the fourth quarter. Transaction-based revenue was $264 million, with options trading bringing in $163 million, while cryptocurrency trading added $48 million and equities contributed $52 million.
One of the worrying signs is that revenue generated from crypto trading is steadily declining. RobinHood reported crypto trading revenue of $233 million in the second quarter of 2021, but crypto-based revenue was only $51 million in the third quarter.
Given the fall in cryptocurrency prices in the first quarter, it's a safe bet that Robinhood's digital currency trading revenue will continue to decline.
In the current environment, marked by numerous macroeconomic and geopolitical risks, it is difficult to imagine the return of retail activity that could fuel the type of subscriber growth that the company has experienced over the past two years.
Steve Jennings/Getty
Robinhood Is Trying to Diversify to Stay Competitive
Since retail trading activity remains weak, RobinHood is trying to transform into a business that offers more than stock, options and cryptocurrency trading.
The firm has just launched a new debit card, Cash Card, that would allow users to invest their spare change. With this new card, users can round their currency to the nearest dollar and invest it in assets of their choice.
RobinHood will also offer customers the option to receive their paychecks up to two days in advance via direct deposit, a feature also offered by PayPal Holdings (PYPL).
Users can also choose to automatically invest a portion of their paychecks. These new features will be free, the company said.
These products and services are part of a strategy announced by Robinhood that it will build products intended to support long-term investing.
"Instant Savings (coming soon)," the company promised. "With inflation on the rise, and people paying high prices on their everyday needs from gas to groceries, starting this summer, we’ll help Cash Card customers beat inflation by giving them savings when they shop at some of their favorite spots like H&M, Chevron and Chipotle, with many more coming soon."
In a push to eventually provide 24/7 equities trading, Robinhood announced on March 29 that it will offer extra hours for its clients. The stock-trading app will now be available from 7 a.m. to 8 p.m. ET. Before the announcement, Robinhood offered trading 30 minutes before the open and two hours after the close.
WallStreet Bets
A Huge Crisis of Confidence with Young Traders
It seems that the disenchantment between RobinHood and those who had contributed to its success is deep. Young traders still don't seem to have forgiven the platform for restricting trading in GameStop and other stocks caught in the market frenzy in January 2021.
"I wouldn't trust RH with my retirement money!!!" posted a Reddit user from the WallStreetBets forum, frequented by millions of young traders registered on free brokerage platforms like Webull or Robinhood. The user was commenting on an article saying that RobinHood was about to launch retirement accounts within the app.
"You could have just said 'money'. Lol," added another one.
"So they can screw seniors as well as the young punks," said another user.
"The same Robinhood that took away the buy button? That Robinhood?" posted another one.
Comments are overwhelmingly negative on every Robinhood topic on WallStreetbets, TheStreet observed.
