Welcome back to closing bell on cheddar news.
Well retail brokerage giant Robin Hood letting go of about
9% of its staff after rapid expansion last year?
Thanks to the meme stock phrase in january of last year
and the rise of retail investing?
Well, the company is now having to reassess as it faces multiple headwinds,
including declining crypto revenue
and an inability to regain prior traction.
The ceo of Latina of writing in a
blog post yesterday yesterday afternoon that quote,
the rapid headcount growth has led to some duplicate roles and job functions.
We determined that making these reductions to Robin Hood
staff is the right decision to improve efficiency,
increase our velocity and ensure that were responsive
to the changing needs of our customers.
End quote.
Well, shares of Robin Hood reaching a new load today that stock down
down 5.5% over the past two days after yesterday's announcement.
And joining me now to discuss is Caleb silver
editor in chief at investopedia, a financial education website.
Caleb it's good to see you.
So is this an expected growing pain for a firm that did see explosive growth
in such a short period of time?
Yeah, I think it's worse than that. The stock is down some 72% since the I. P. O.
And it really hasn't done much uh you know, since it went public,
there was a little bit of excitement around that.
But yeah it grew really fast. It had went from 700 employees
to 3800 employees
in just last year in 2021 because of that growth.
10 million new traders and customers joining up with Robin Hood. But guess what?
They're not trading that much.
And how does Robin Hood make money in crypto and in options?
And we've seen a lot of reduced activity in
both of those areas and the average account balance
for its customers is super low. It's something like $240.
So there's not a lot of turning,
there's not a lot of trading going on and the people that
are trading don't have a lot of money in their accounts.
Any indication Caleb as to how this might change the user experience
if 9% of the staff is shed according to Robin Hood,
will the user notice a difference?
I don't think so.
I think you're gonna see a little bit more automation,
but that's how Robin Hood was built.
I think what you'll see is less marketing.
I think that's where the duplicative efforts were to get new customers
less sales to get new customers and more focused on trying to
get more out of those existing accounts because folks by and large
that have Robin Hood accounts don't do a lot of trading,
don't have very large balances.
And the areas where Robin Hood makes money again, crypto and, and uh, and in options,
they're just not very hot right now.
Bear market will do that in tech stocks,
but also a big crash and a lot of the cryptocurrencies will do that as well.
So a lot of enthusiasm is gone.
All platforms are facing these growing pains to a degree,
It's just much worse for Robin Hood because it had that explosive
growth when the market was hot and when mean stocks were everything,
we just don't have that kind of activity right now.
So let's talk more about Robin Hood isn't mostly a retail investor who's on
this platform versus let's say a fidelity at Charles Schwab or Td Ameritrade.
Absolutely.
And you could just tell by the account side they're
not offering four oh one K plans just yet.
They're going to probably get into some other financial products.
They wanted to become a platform that offered everything,
starting with that free trading and then expanding out.
But I'm sure they're gonna have to reduce a
lot of those expectations for growth and where they
were going to grow their business just to focus on what they do and what they do well,
but the market cap proceed down to $9 billion.08 or
$9 billion they look like an acquisition target to me,
I'm not saying that I know anything about this, but they're looking awful cheap.
And when you think about what's going on
with twitter and some of these other platforms,
you can see a buyer coming from Robin Hood any any minute now.
Right.
I'm thinking of Activision blizzard as well,
of course Microsoft capitalizing on that, clearly Elon musk with twitter,
I will wait to see on Robin Hood Caleb we don't know of course if any country,
if any companies are actually interested in Robin Hood,
but what might be a natural fit,
would it be another brokerage or you think another financial services company?
Yeah, you could go that route with another financial services company.
Look at morgan Stanley and ETrade obviously Schwab and
Ameritrade obviously teaming up two giants right there.
But you could also see this fitting potentially into a different type of a platform,
even an apple there I say,
or or another company that has a lot of customer
penetration and engagement fits kind of nicely into there.
If you're trying to circle the world to have the financial services part,
the trading part and then everything else in your life running through one device,
you could see something like that happening or it could be a player out of nowhere
or out of europe or Asia coming in with a lot of money right now and saying
this looks awful cheap. We want all those customers,
the market's gonna rebound eventually. It's worth it.
So it's interesting.
Um,
it sounds like at least what we know that there
aren't gonna be any major changes to the user experience.
If you're
using Robin Hood to make your investments or trade, you can still do that,
but any indication Caleb where these job cuts
will be coming from inside the company.
Yeah, they didn't specify.
But you can imagine when they ramped up, what were they trying to do?
More customer support,
more tech support and more marketing to get even more
customers in and take advantage of that big wave.
So that's probably where those cuts were. Vlad was not specific in that blog post.
I'm sure we'll find out on their earnings call on thursday.
There'll be a lot of questions about that.
There'll be a lot of questions about the plan to go forward
because Robin has lost about $2 billion since it went public,
right.
Revenue is going to fall off a cliff as his customer engagement user engagement.
Daily active users and the amount of revenue
per user all that's just gonna keep cascading until
there's some rebound and active activity and excitement
in the stock market and the meme stocks.
Again, that's going to be the case.
All right, Caleb, silver, editor in chief at investopedia. Caleb.
Always good to get your insight. Thank you.