Robinhood cuts 23 percent of its workforce due to the cryptocurrency crash


Robinhood, the trading app that has gained popularity for its intuitive stock and cryptocurrency features, is cutting nearly a quarter of its workforce due to declining cryptocurrency revenue and values.

Chief Executive Vlad Tenev outlined plans to cut 23% of staff at a company-wide meeting on Tuesday. This follows a 9% reduction in April which, Tenev said in a statement, “did not go far enough”.

Tenev said the company operated with “more staff than necessary” in 2021 on the assumption that increased consumer interest in cryptocurrency and stock trading would persist. The company had increased the number of employees by 700 employees, or more than 20 percent, financial documents show. Robinhood, which had 3,900 full-time employees at the time of the April announcement, estimates the two rounds of layoffs will affect more than 1,100 people, primarily in operational, marketing and program management functions.

But the worsening economic climate forced the company to rethink its structure. Tenev cited decades-long high inflation – which rose 9.1% in June, year over year – as well as the cryptocurrency market crash, for cuts. The value of bitcoin, the leading cryptocurrency, has plummeted since it eclipsed $ 66,000 in late 2021. It was trading below $ 20,000 in early July, but has since returned to around $ 23,000.

Wall Street, meanwhile, went through its worst January-June period since 1970, when inflation-induced upheavals swept through nearly every part of the economy. Powerful tech giants, who enriched investors during the first phase of the pandemic with soaring share prices, were also brought down, outperforming the market.

As a result, the business has abandoned a Robinhood, as have the businesses under the management of the company.

“As CEO, I have approved and taken responsibility for our ambitious staffing trajectory – that is up to me,” said Tenev.

Tech companies have recalibrated their hiring plans as rising economic headwinds heightened recession fears, leading to layoffs and hiring freezes. These trends were even more pronounced in crypto-verse: In June, major cryptocurrency companies including Coinbase, BlockFi, and Gemini reduced their workforce by thousands.

Robinhood’s second quarter earnings report showed a 74% reduction in marketing spend and 56% more in technology and development spending. “This, coupled with the company’s public statements, shows Robinhood’s focus is shifting away from user retention,” said Collin Bogie, senior business associate at fintech start-up Zingeroo.

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With a mission to “democratize finance for all,” Robinhood was founded in 2013 by Tenev and Baiju Bhatt, who stepped down as CEOs in 2020. The company helped pioneer the fractional investment model in which investors they can buy partial shares and cryptocurrencies without commission fees.

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In 2021, it generated $ 1.82 billion in net revenue, an 89% increase over the previous year, and recorded up to 18.9 million monthly active users.

By June, it had dropped to 14 million monthly active users, according to Q2 financial results released Tuesday. It recorded revenue of $ 318 million, down 44% from $ 565 million in the same three months of 2021.

Many of Robinhood’s clients relied on optimal market conditions, said Dennis Kelleher, co-founder of Better Markets, a nonprofit that supports financial reform.

“Robinhood is somewhat unique in having the perfect combination of a successful predatory business model at a time when the appetite of retail investors to participate in the markets was at an all-time high,” said Kelleher. “History has shown that retail traders increase their participation in bull markets and decrease their participation in bear markets.”

The stock market is in bearish territory. What does it mean?

The S&P 500 has slipped into a bear market, meaning the index has lost 20% of its value since its most recent peak in June. A July rally that lasted through August reduced the index’s losses in 2022 to 12.8%.

But Robinhood faces other challenges, including greater scrutiny by users and regulators.

The New York State Department of Financial Services imposed a $ 30 million fine on Robinhood’s cryptocurrency unit on Tuesday, citing failures in its transaction monitoring system and cybersecurity system. The sanction marked the first sanction on cryptocurrency assets in the United States.

Robinhood was also investigated after the GameStop frenzy in early 2021, when retail investors in online communities like Reddit raised the price of “meme shares”. The company froze trading in GameStop shares, citing market volatility. Attorneys General for the state of New York and Texas, as well as the US Securities and Exchange Commission, were among the agencies that investigated Robinhood’s actions. The company also reached a $ 65 million deal with the SEC in December 2020 to settle allegations of deceptive customers.

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