Robinhood Shares Jump 13% On Optimism Over Cost-Saving Moves

Topline

Shares of Robinhood rose 13.1% Wednesday to $10.44, a three-month high, a day after the online brokerage released dismal earnings and announced it was laying off nearly a quarter of its workers.

Key Facts

In tandem with reporting a 44% drop in second-quarter sales but a better than expected $290 million loss, Robinhood said it would lay off 23% of its workforce, with CEO Vlad Tenev citing the “deterioration of the macro environment” and the cryptocurrency market crash as having undercut the growth assumptions under which the company had aggressively expanded headcount last year.

Analysts expressed optimism about Tuesday’s developments, including Goldman Sachs analyst Will Nance, who wrote in a note the “cost reductions will likely drive the company to profitability in the near term and could drive shares higher.”

Mizuho Securities analyst Dan Dolev agreed, writing in a note he expected traders to shift their “focus to fundamentals and path to profitability.”

Robinhood shares are still down 72.5% from its $38 initial public offering price in July 2021 and 87.7% from its peak of $85 last August.

Contra

JPMorgan analyst Kenneth Worthington expressed doubt about the cost-cutting measures moving the needle for Robinhood, writing in a note he doesn’t see “growth as sustainable,” explaining there’s a narrow path to profitability for the firm given the limited trading volume it handles.

Key Background

Robinhood’s fall from grace has been dramatic. The mobile app-based brokerage posted torrid growth in 2020 amid a boom in retail investing amid the pandemic, but it’s shed more than $20 billion in market capitalization since its 2021 IPO amid a slowdown in trading. Its number of active monthly users plummeted 34% to 14 million in the second quarter compared to a year ago. Its stock’s poor performance has followed intense scrutiny into its business practices and a series of fines: a $65 million penalty from the Securities and Exchange Commission in December 2020 for misleading customers about its revenue source and not seeking the best trade terms for users, a $70 million fine from the Financial Industry Regulatory Authority in June 2021 for encouraging risky trades and generally misleading users and a $30 million fine from the New York Department of Financial Services on Tuesday for violations of New York’s anti-money laundering and cybersecurity regulations in its cryptocurrency division.

Further Reading

Robinhood Lays Off Quarter Of Staff (Forbes)

Robinhood’s Crypto Arm Hit With $30 Million Fine By State Regulator (Forbes)