After the Pandemic stock trading boom, Robinhood suffers from the worst hangover

Robinhood, the retail broker, whose growth reached the stratosphere, when the stock trade was booming during the Coronavirus pandemic, has fallen back to Earth.

active users have fled the platform. The number of financed accounts has settled. Robinhood's market capitalization has dropped by two thirds since the IPO last summer. Last week it announced the layoffs for almost a quarter of its workforce.

"It is a post-covid cat," said Dan Dolev, Analyst at Mizuho Securities. Robinhood "Woke up in a hotel in Las Vegas, and there is a Bengal tiger in the bathroom".

The broker based in California attracted a generation of first investors with commission -free trade and a user -friendly app. But its expansion has come across a wall since the state pandemic economy payments ended, inflation began to eat into the budgets of investors and crashed from its highest levels.

The Robinhood company has felt these challenges more than other brokers. In the second quarter, sales decreased by 44 percent compared to the previous year, compared to an adjusted increase of 10 percent at Interactive Brokers and an increase of 13 percent at Charles Schwab. Schwab also recorded record profits for the quarter.

After 10 million accounts were added in 2021, Robinhood added only 100,000 accounts in the second quarter. The number of active retailers on his platform decreased by almost 2 million to 14 million compared to the previous quarter. A year earlier there were a total of 21.3 million active users.

Part of Robinhood's problem is demographic. The broker attracted younger customers who found cash to invest with their stimulus checks. When the last government payments went out in March 2021, Robinhood Snacks' email newsletter was heading "The Stimulus Has Landed".

"You are aimed at the youngest who benefited from 'voice'.

But since inflation now sweeps through the economy, young customers have proven to be the most susceptible to financial shocks.

"Traditional investors who invest in retirement have not withdrawn, but have not disappeared. These less income, less demanding customers are those who have just gone," said Richard Repetto, an analyst who follows brokers and stock exchanges at Piper Sandler.

Part of Robinhood customers placed bets on financial technology and crypto-related shares, which were among the largest declines in the middle of falling stock markets this year. The commitment means that they were hit harder as investors with wider portfolios.

While the reported customer assets of Schwab in the second quarter decreased by 10 percent compared to the previous year, the wealth of Robinhood fell by 37 percent from USD <

"The young people were put down because they held all the shares that were put down, the crypto shares and the fintech shares," said Repetto.

Robinhood said that his competitiveness would depend on launching new products. But the "frustrating" internal bureaucracy slowed down the introduction of things like pension accounts, an employee said with direct knowledge of the matter.

The employees went because morality worsens. Before the last staff loss, Robinhood released 9 percent of full -time employees in April. Since then, according to Robinhood numbers, another 5 percent of the employees have terminated.

The majority of Robinhood's income is bound to the number of transactions that take place on its platform. Since the trade in volatile assets such as cryptocurrencies has decreased, this source of income has also decreased.

In the second quarter of 2021, the crypto trade made up half of the transaction-based income of Robinhood of $ 451 million. A year later, the crypto trade brought $ 58 million, which only made 29 percent of the transaction revenue of a total of $ 202 million.

"Where did Robinhood generate this outlier growth and trading volume? Many small crypto dealers and many small crypto shops," said Tom Sosnoff, co -founder of the option trading platform TastyWorks. "The reason why online brokers like Tasty, Interactive Brokers, Fidelity and Schwab did not have the same kind of drawdown as Robinhood, is that Krypto is practically none of our income and practically all of theirs."

The interest rate increases of the US Federal Reserve have given brokers the opportunity to earn interest and investment income for money that is deposited on customer accounts.

But Robinhood largely misses this advantage. The accounting stands there are on average at around $ 4,500 compared to $ 352,764 at Schwab. For each interest rate increase of 0.25 percentage points, Robinhood claims to earn a further $ 40 million of interest income, while Schwab earns another $ 350 to 550 million, according to the brokers.

Although Robinhood growth has made other brokers jealous of the users in the pandemic, the company concentrates inwards.

"Historically, Robinhood was a company that focused on the recruitment of new customers," said co -founder and managing director Vlad Tenev last week. "This year will concentrate on the valuable customers that we already have."