Robinhood to slash headcount by 23% as retail trading bubble bursts

Robinhood is laying off almost a quarter of its staff as the company that rode the coronavirus pandemic-era retail trading boom and promised to revolutionise stockbroking contends with a decline in customer activity.

The company announced in a blog post on Tuesday that it was slashing its headcount by 23 per cent — or roughly 780 employees — as part of a reorganisation that would also result in the closure of two of its offices.

“We will be parting ways with many incredibly talented people today in an extremely challenging macro environment,” Robinhood co-founder Vlad Tenev wrote.

The brokerage’s shares fell about 1 per cent in after-hours trading.

At the time of its initial public offering last summer, Robinhood boasted that 50 per cent of retail trading accounts opened in the US from 2016-21 were on its platform. But the lockdown- and stimulus-fuelled trading boom has lost steam, and Robinhood shares have fallen 50 per cent since the start of the year.

The announcement marked the latest round of lay-offs for the seven-year-old brokerage, which in April said it would cut 9 per cent 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.

Trading volumes have continued to decline. “We have seen additional deterioration of the macro environment, with inflation at 40-year highs accompanied by a broad crypto market crash,” Tenev wrote.

In a call with reporters, Tenev said that he had expected the trading conditions in 2020 and 2021 “to last longer than they turned out to last”.

As it announced the lay-offs, Robinhood also released its quarterly earnings a day earlier than expected. It reported $318mn in revenue, down 44 per cent from $565mn during the same quarter last year, and below analyst expectations for $321mn.

Its net loss for the quarter was $295mn compared with the $308mn loss analysts had expected and 41 per narrower than the $502mn loss last year. The net loss per share was $0.34, compared with a loss of $2.16 per share from the same quarter last year.

The bulk of its revenues came from payment for order flow, the controversial practice of selling customer trades to market makers that has been highlighted by the US Securities and Exchange Commission for review. In the three months to June 30, revenues from selling order flow fell 7 per cent to $202mn. 

The hardest-hit teams were those that expanded rapidly when trading volumes were rising such as customer support and marketing. “This is us reacting to lower [trading] volumes,” said Jason Warnick, Robinhood’s chief financial officer.

Active users on the platform dropped by almost 2mn to 14mn in the second quarter of 2022, extending their decline as interest in retail trading waned. Robinhood ended 2021 with 17.3mn active users.

During the quarter, the brokerage added just 100,000 funded accounts — accounts with cash deposits in them — bringing the total to 22.9m. Interest rate rises were a bright spot, as revenue from interest on account balances rose 35 per cent to $74mn. 

Robinhood customers sustained big losses for the quarter. Assets under custody plunged 31 per cent to $64.2bn from the previous quarter, following a steep sell-off in tech stocks and cryptocurrencies, which are popular holdings among Robinhood customers.

The brokerage’s poor performance has raised suggestions it could be acquired. In April, the billionaire founder of crypto exchange FTX, Sam Bankman- Fried, took a 7.6 per cent stake in the company worth $648mn. FTX said no formal M&A talks have been held.

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.”

Earlier on Tuesday, Robinhood’s cryptocurrency business agreed to pay a $30mn settlement to the New York State Department of Financial Services, which alleged the brokerage had made “significant failures” in compliance such as cyber security, anti-money laundering and customer protection.

The job cuts will not affect the anti-money laundering team, Robinhood said, an effort to “do the right thing” and improve compliance after repeatedly running foul of regulators since its founding.

Multiple tech companies have laid off employees amid interest rate increases fears of a recession. Robinhood’s lay-offs are “understandable and a manifestation of the post-Covid fintech hangover,” said Dan Dolev, managing director at Mizuho Securities.