A Detailed Recap Of The Robinhood Crisis: What Lies Ahead for the Company?

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American financial services company, Robinhood, had launched several new products in the first half of 2022, that focused on delivering top-feature requests and addressing the pain points for advanced customers. 

In the second half of the year, Robinhood rolled out Stock Lending to provide customers with an additional source of income on their stocks. It had over $3 billion of equity value already enrolled and available to lend to the customers.

Reportedly, Robinhood has been in some trouble over trading GameStock and AMC stocks since January 2021- a matter which hasn’t settled down yet, and investors continue to hit the company with newer allegations. 

In a recent advancement, Robinhood will now be facing charges of market manipulation as part of a new class-action lawsuit brought up by investors in “meme stocks” from nine different companies during a January 2021 rally.

Robinhood Q2 Analysis

Robinhood’s total net revenues have increased by 6% sequentially to $318 million. Its transaction-based revenues decreased by 7% sequentially to $202 million, and Options saw a decrease of 11% sequentially to $113 million. Robinhood’s Cryptocurrencies increased by 7% and equities decreased by 19%.

Vlad Tenev, CEO and Co-Founder of Robinhood Markets said “In the second quarter we continued to make strong progress on our roadmap and delivered products that will help our customers navigate an environment marked by higher interest rates and rising inflation. With the introduction of Stock Lending, extended hours for trading, improved options offerings, new coins, and the announcement of our non-custodial wallet, we’ve built an even better and more robust customer experience in the first half of the year and look forward to bringing our customers additional products and services throughout the remainder of 2022.”

Robinhood has also taken steps to improve its options offering. For instance, the company introduced options in cash accounts, which was a top-requested feature among advanced customers.

In the next half of the year, Robinhood has plans to further enhance the customer experience by introducing advanced charting and screening tools, delivering improvements to the core trading flow, and rolling out retirement accounts.

Robinhood in Trouble Again?

On Thursday, a report from Reuters stated that the United States District Court Judge, Cecilia Altonaga of the Southern District of Florida, gave a green flag to the investors of GameStop, AMC, and seven other unnamed stocks (which may possibly include Nokia and BlackBerry) with respect to a lawsuit alleging that Robinhood artificially increased the supply of stocks. 

Back in January 2021, the price of multiple assets including the meme token Dogecoin (DOGE), climbed to an all-time high after Redditors on Wallstreetbets pumped interest in certain stocks and cryptocurrencies.

At one point, Robinhood suspended the option to buy GME and other stocks following the assets’ exponential rise. This didn’t last long, though. The trading company soon resumed the option to buy, putting the platform in the middle of a conflict between retail investors and large hedge funds shorting stocks.

The platform held back its plans for an initial public offering in the U.S. after thousands of users left one-star reviews for Robinhood’s app on Google Play Store. 

“Today is the day that Robinhood stole from the poor to give to the rich. $GME $KOSS”

The U.S. lawmakers targeted Robinhood post the meme stock controversy in the hope of extracting some answers. 

Additionally, the New York Department of Financial Services announced that “Robinhood Crypto will pay a $30 million penalty to the state for significant failures in the areas of Bank Secrecy Act/Anti-Money Laundering obligations.”

What Next?

The release of the Q2 report was bound to draw the public’s attention back to Robinhood once again.

CEO Tenev claimed to be considering cutting down 23% of his workforce in the agency. 

Tenev wrote that the upcoming layoffs would be impacting all functions in the company, particularly operations, marketing, and program management. Financial times estimated that about 780 employees would be impacted by the cut-down.

“Departing Robinhoodies will be offered the opportunity to remain employed with Robinhood through October 1, 2022 and receive their regular pay and benefits. They will also be offered job search assistance (including an opt in Robinhood Alumni Talent Directory).” — Zerohedge August 2, 2022