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Robinhood Markets (HOOD) in Sweeping Overhaul as Revenue Slumps 44%

Robinhood Markets (HOOD) in Sweeping Overhaul as Revenue Slumps 44%

Zain Vawda,
  • Robinhood (HOOD) Released Earnings a Day Early with Revenue down 44% and a USD295 Million Loss for Second Quarter.
  • 23% Cut in Workforce, Focused on Operations, Marketing and Program Management.
  • Crypto Unit Fined USD30 Million by New York Regulator.
  • Shares Down 3% in Extended Trading.

What is Earnings Season & What to Look for in Earnings Reports?

Robinhood Markets Inc. (HOOD) is eliminating almost a quarter of its workforce and shuttering offices after a punishing first year as a public company. Who can forget the inspiring story of college roommates looking to revolutionize stockbroking, particularly for the masses? At the time of its initial public offering last summer, Robinhood (HOOD) boasted that 50 percent of retail trading accounts opened in the US from 2016-21 were on its platform. However, the lockdown and the stimulus-fueled trading boom has lost steam, and Robinhood shares have fallen 50 percent since the start of the year.

Robinhood Markets (HOOD) in Sweeping Overhaul as Revenue Slumps 44%

Source: Bloomberg

The app-based brokerage reported second-quarter results a day ahead of schedule, saying its net loss for the period was USD295 million, or 34 cents a share. Net revenue tumbled 44% from a year earlier to USD318 million.Active users on the platform dropped by almost 2 million to 14 million in the second quarter of 2022. During the quarter, the brokerage added just 100,000 funded accounts, accounts with cash deposits in them while assets under custody plunged 31 percent to USD64.2bn from the previous quarter, following a steep sell-off in tech stocks and cryptocurrencies, which are popular holdings among Robinhood customers.

Adding to its woes, Robinhood Markets Inc.’s cryptocurrency arm was fined $30 million by New York’s financial regulator after the brokerage was accused of violating anti-money-laundering and cybersecurity rules. The unit must enlist an independent consultant to monitor compliance, according to an order filed Tuesday. The firm disclosed last year that it expected to pay the penalty.

Download your Q3 Equities Forecast

Second Round of Job Cuts This Year

The company announced in a blog post on Tuesday that it was slashing its headcount by 23 percent, or roughly 780 employees as part of a reorganization that would also result in the closure of two of its offices. Among the notable departures, Chief Product Officer Aparna Chennapragada is leaving the company with the firm to incur USD30 million to $40 million of charges for severance and benefits and USD15 million to USD20 million tied to the office closures, according to the filing. “We will be parting ways with many incredibly talented people today in an extremely challenging macro environment,” Robinhood co-founder Vlad Tenev wrote.

The announcement marked the latest round of lay-offs for the seven-year-old brokerage, which in April said it would cut 9 percent of full-time staff. Robinhood said employees who lost their jobs would have the option to stay until October 1, and it has no further plans to reduce headcount.

Merger and Acquisition Talk

The brokerage’s poor performance coupled with a huge decline in stock price since posting highs last year around USD85 has raised suggestions it could be acquired. In April, the billionaire founder of crypto exchange FTX, Sam Bankman- Fried, took a 7.6 percent stake in the company worth USD648mn. FTX said no formal M&A talks have been held. Robinhood CFO, Jason Warnick rejected the idea Robinhood would be interested in merging with another company: “To the contrary of being acquired, we think we should be looking more aggressively to acquire other companies.”

Robinhood Markets Inc. 4H Chart, August 3, 2022

Robinhood Markets (HOOD) in Sweeping Overhaul as Revenue Slumps 44%

Source: TradingView, Prepared by Zain Vawda

Technically we seem to have found a bottom on June 16 around $6.82 before rallying higher. We do seem to be bullish from a 4H perspective as we continue making higher highs and higher lows respecting technical structure. We have broken above and retested the 100-SMA on the 4H chart with more upside a possibility. Yesterday’s announcement has failed to alter the 4H structure, and should the price remain above the 4H swing low we could see $10-10.20 in the short-term which lines up with the 100-SMA on the daily chart.

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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