The news: A $30 million fine and plans to lay off almost one-quarter of its workforce are the latest signs that digital broker Robinhood is struggling.
Bad news comes in threes
1. More job cuts:
2. Disappointing earnings:
3. Slapped with a fine:
What’s behind the decline? Robinhood was hugely successful during Covid lockdowns due to a trading frenzy among amateur investors. But trading cooled as the cost of living increased and interest rates rose, and its share price has plummeted more than 70% since last July.
This year, Robinhood has tried to diversify its offering to counter tumbling volumes, with limited success. Various efforts include:
Robinhood’s extensive efforts to expand its offerings have appeared increasingly desperate as it continues to pursue younger users. It’s not been helped by a wider crypto market slump. But it has also suffered from its narrow focus on a single age demographic and on notoriously volatile products, like crypto and app-based trading.
The big takeaway: Persistent missteps and a wider decline in trading activity have combined to hurt Robinhood. Going forward, digital brokers need to explore revenue-generating avenues more resistant to downturns. If Robinhood is unable to pull out of the ongoing nosedive, it may be better served by seeking a buyout before the year is over. FTX has already been linked to a takeover. If not, Robinhood needs to hunker down, cut costs, and wait for the slumping retail trading market to pick up.