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Robinhood cuts 23% of its workforce amid crypto crash

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

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

Tenev said the company was operating with “more staff than necessary” in 2021 assuming increased consumer interest in cryptocurrency and stock trading would persist. The company has increased its workforce by 700 employees, or more than 20%, according to financial documents. 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, mostly in operations, marketing and program management roles.

But a deteriorating economic climate forced the company to rethink its structure. Tenev cited decades-high inflation — which climbed 9.1% in June, year-over-year — as well as the crash in the crypto market, for the cuts. The value of bitcoin, the main cryptocurrency, has plunged since eclipsing $66,000 in late 2021. It was trading below $20,000 in early July but has since rebounded to around $23,000.

Wall Street, meanwhile, endured its worst January-June period since 1970, with inflation-related turmoil spreading through nearly every sector of the economy. Even the mighty tech giants, which made investors rich at the start of the pandemic with soaring stock prices, have been dragged down, performing below market.

As a result, business activity plummeted by a Robinhood, as did the assets under the company’s management.

“As CEO, I have endorsed and taken responsibility for our ambitious staffing trajectory – it’s on me,” Tenev said.

Tech companies have recalibrated their hiring plans as growing economic headwinds heightened recession fears, prompting layoffs and hiring freezes. These trends were even more pronounced in the realm of crypto: in June, major cryptocurrency companies, including Coinbase, BlockFi, and Gemini, cut their workforces by the thousands.

Robinhood’s second-quarter earnings report showed a 74% reduction in marketing spend and a 56% increase in technology and development spend. “This, along with the company’s public statements, shows that Robinhood’s focus is moving away from user retention,” said Collin Bogie, senior partner at fintech startup 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 split investing model where investors can buy partial shares of stocks and cryptocurrencies without commission. costs.

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

By June, it had fallen to 14 million monthly active users, according to its second-quarter financial results released on Tuesday. It had $318 million in revenue, down 44% from the $565 million reported in the same three months of 2021.

Many Robinhood customers relied on optimal market conditions, said Dennis Kelleher, co-founder of Better Markets, a nonprofit that advocates for financial reform.

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

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

But Robinhood faces other challenges, including scrutiny from users and lawmakers.

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

Robinhood also came under scrutiny after the GameStop frenzy in early 2021, where retail investors from online communities like Reddit drove up the price of “meme stocks”. The company froze trading in GameStop shares, citing market volatility. The New York and Texas state attorneys general, as well as the United States Securities and Exchange Commission, were among the agencies that investigated Robinhood’s actions. The company also reached a $65 million settlement with the SEC in December 2020 to settle accusations of deceptive customers.