Robinhood Lays Off Nine Percent of Its Full-Time Employees
Crypto investment platform Robinhood is laying off nine percent of its full-time workers. CEO Vlad Tenev announced the layoffs in a weblog post. The layoffs are an unfortunate part of the company’s growth, which was spurred by investments in “meme” stocks and cryptos. However, the layoffs are not a reflection on the financial soundness of the Company.
Robinhood lays off 9 percent of its full-time employees
After massive growth, Robinhood is laying off nine percent of its full-time employees. CEO Vlad Tenev cited a period between 2020 and early 2021 when revenue tripled. A pandemic, low interest rates, and various government stimulus payments all contributed to the growth. From just 700 full-time employees in February 2017, the company’s headcount increased to nearly three thousand by the end of 2021.
The news sparked a downward sell-off in Robinhood stock, which fell 3.75% by Tuesday’s close and gained nearly 4% in after-hours trading. Tenev said that he would contact laid-off employees to discuss “next steps” and offer separation packages. He said the company would also offer job-search assistance to employees affected by the layoff. This news will probably have a negative impact on the company’s shares, which have lost more than 72% since the company went public in July.
Though the news is not good for Robinhood’s stock price, the company’s recent progress is encouraging. It reported an increase in value of 25 percent in March, and recently expanded its trading hours, allowing customers to trade stocks all around the world. The company also announced a data breach last November that affected millions of customers. This news has caused its stock to rise in the short-term, but analysts say it could take months before shares recover.
In the coming months, Robinhood will hold $6 billion in cash to launch new products. Profits will rise by 91 percent in 2020 and then climb again by 141 percent in 2021. In April, the company launched its cryptocurrency wallet, allowing its users to interact with crypto outside the platform. The wallet allows users to buy and sell NFTs without leaving the trading platform. The layoffs will likely affect Robinhood’s growth as it looks to grow.
Company’s growth spurred by “meme” stocks
Meme stocks have become increasingly popular in the market, and Robinhood is a prime example of this. The app is a hub for trading these stocks, and it has become a favorite of WallStreetBets users. However, it was not until GameStop surpassed its peak that Robinhood began restricting trading on certain stocks. The company claims that it was forced to implement such restrictions due to liquidity issues, Wall Street rules and clearinghouse limits. However, this decision caused stocks to plummet and sparked lawsuits, congressional hearings, and an S.E.C. investigation.
The recent surge in popularity of meme stocks has fueled a boom in private trading on Robinhood. The service has grown to more than 22 million users and will double in number by 2020. However, it is not entirely clear if “meme” stocks are responsible for the surge in Robinhood’s user base. While the company has provided an easy way for young investors to get into the market, it has also failed to educate them about the market.
Because meme stocks are so volatile, they shouldn’t be invested in unless you have experience in investing in the stock market. Inexperienced investors should avoid such risky investments, but those with experience are encouraged to invest in them. Although they might not be the right financial strategy for new investors, they can help them understand the risks and rewards of the stock market. A buy-and-hold strategy, also known as “value investing,” favors long-term gains over short-term gains. It requires careful research of companies and their financials, as well as technical aspects of stock movements.
Another potential reason for ARK Invest to invest in Robinhood is the emergence of a pandemic virus. This could spur a retail investor frenzy on the stock. ARK Invest is known for buying tech stocks at annual lows. Similarly, Twitter’s stock surge in November reflected a similar phenomenon. The company’s user-friendly app has made it popular with novice investors.
Company’s growth spurred by crypto investments
Crypto investments are one of the main reasons for the explosive growth of Robinhood, which has returned to British shores after a hiatus. Founded in 2014, the app is the first cryptocurrency-based money manager. Despite the high fees and lack of transparency, Robinhood has received plenty of positive feedback, and its CEO is a certified financial planner. Crypto investments have also helped Robinhood achieve its goal of democratizing the financial system, with its free app offering access to investors from anywhere.
The company’s growth has been largely fueled by cryptocurrency, and last year it introduced trading in Bitcoin and Ether in five states. Although crypto investments aren’t yet legal in most parts of the U.S., Tenev emphasized that the company needed more senior executives and experienced financial professionals. As a result, Robinhood reorganized its workforce and hired Jason Warnick, who previously worked at Amazon.
The two co-founders of the Robinhood app drew inspiration from the Mailbox e-mail app. They launched a waiting list for new users and then offered an opportunity for people to move up the list if they wanted. The app has now raised a total of $1.2 billion in venture capital from celebrities and investors. Founded by two former members of the Box team, the company has increased its user base from a few thousand users to over three million.
In the first quarter of this year, Robinhood had 6 million crypto users, up from 1.9 million a year ago. With these numbers, the company could potentially challenge Coinbase’s dominance in the crypto space. However, the company has also faced criticism from users for triggering user behavior through color palettes and confetti falling when a trade is made. Although the company has since removed these practices, the negative publicity has resurfaced in the market.
Company’s financial soundness
With an average age of 31 and no investment know-how, some of Robinhood’s customers are questioning the company’s financial soundness after laying off more than nine percent of its full-time employees. However, others are skeptical, and some have even visited the company’s Menlo Park headquarters to check out the latest developments. Although some of the company’s employees declined to identify themselves for fear of retaliation, several Robinhood employees say they believe the firm is financially sound, despite the lack of growth.
The company’s recent layoffs prompted the Securities department to freeze some trades and raise emergency funding. A few executives had their cell phones seized. Some were even summoned to testify before Congress, which further fueled concerns. Despite the difficulties the company is facing, the company is on track to go public in July 2021. Its losses last year totaled $3.69 billion, which is a big amount for an early stage company.
Aside from the cuts, the company has made a number of technology investments. Earlier this year, it reported having around 3,400 employees. The layoffs may affect 300 of those employees. The company’s shares fell as much as 4% in today’s trading session and 5% in after-hours trading. Nevertheless, the company said it would try to get in touch with its laid-off employees and offer them separation packages and job search help.
The company’s failure to properly accept orders and trades cost individual customers tens of thousands of dollars. In addition, the company is currently facing investigations by the New York Department of Financial Services (FINRA), which alleges that it failed to disclose critical information to its customers about its investments. The regulator also ordered the company to pay $5 million in restitution to customers in order to resolve the situation.
Impact of layoffs
The impact of Robinhood layoffs is hardly unprecedented. During the company’s recent growth, the company has increased its employee rolls by a factor of six, from 700 employees to nearly three thousand. This exponential growth has led to duplicating roles and added layers of complexity. The company’s strategy seems unaffected, however. It plans to introduce new products for its clients and increase international expansion. Although the company is laying off employees, Tenev said that the layoffs will not change the direction of the business.
The layoffs were announced just before the company’s first-quarter earnings report. The news has already impacted Robinhood stock, which has fallen nearly seventy percent in the past six months. The company had already grown its headcount from 700 to 3,800 employees during this time, resulting in redundant employee roles and unnecessary levels of complexity. While Robinhood’s layoffs will affect 300 people, Tenev says the company is still committed to building its business and will continue to open its wallet for more deals.
The latest round of layoffs could mimic the March layoffs, creating new stories for the media. The colder winter months weigh on sales, while the virus pandemic is causing apprehension among consumers. At the same time, it could be a case of the’shelf’ economy in America. With the economy still struggling, there’s no way to tell if it will remain the same for long.
The layoffs are another sign that the company’s founders are focusing on diversifying their team. A new CEO would be ideal to keep the team diverse and inclusive, and the company’s board has already revamped itself. In January 2021, the company’s stock plunged into the low single digits. Its stock recently hit a high of $70, but the company’s valuation has plunged eighty percent in fewer than six months.