Robinhood CEO keeps faith in face of 77% share wipeout


July 28, 2022

(Bloomberg) — A relaxed vibe envelops the California headquarters of Robinhood Markets Inc., where employees stroll in pairs around a lush courtyard of cacti, towering evergreens and a chunky grapefruit.

The zen vibe extends to the app-based brokerage’s C-suite, where co-founder and CEO Vlad Tenev, wearing white sneakers and a charcoal button-up shirt, sprawled on a blue sofa during a an interview.

It’s not exactly the kind of atmosphere one would expect for a company that has lost more than $4 billion in the past five quarters and seen its stock plunge 77% since IPO. on the stock market last July. The challenges have only mounted in recent months, as stagnant user growth and a broad drop in trading have coincided with a series of job cuts, not to mention a possible regulatory overhaul that could threaten a key source of revenue.

If Tenev, 35, is shaken, he doesn’t show it.

“You can’t run a business, or really live your life, with your emotions being driven by how the stock market moves,” he said in an interview ahead of the first anniversary of the IPO.

Still, investors will be looking for signs that Tenev is making progress in a turnaround when Robinhood reports second-quarter results on Wednesday. It plans to do this by catering to the company’s most active customers, a pivotal part of the company’s previous strategy of bringing together as many users as possible, regardless of how often they trade or how often. little money they hold in their accounts.

Having a large number of small-dollar investors hasn’t exactly been a boon to Robinhood’s results. The median account size was around $240 in February 2021, Tenev told the House Financial Services Committee that month. His testimony addressed the meme stock frenzy weeks earlier, when shares of GameStop Corp. and others soared, prompting Robinhood to restrict certain stock purchases. A recent investigation by committee staff revealed how the episode seriously threatened Robinhood’s business.

“This year we kind of focused on the people we already had,” Tenev said of the roughly 23 million customers who have deposited funds into a Robinhood account. But the most active users are those experimenting with other offers, such as its payment card and recurring investments, he said.

Monthly active users hit 24 million about two months before the IPO and have fallen steadily since, to 14.6 million at the end of May. Crypto exchange volume has been hit particularly hard, dropping 94% over the same period as Bitcoin prices tumbled and the Terra stablecoin ecosystem collapsed.

Robinhood, which Tenev founded in 2013 with fellow Stanford University roommate Baiju Bhatt, says “democratizing finance” is its mission. But prioritizing active users can come at a cost: A former manager, who asked not to be identified, said senior executives pay more attention to superusers than studying how they could improve the financial well-being of customers, missing an opportunity to help build lasting wealth with the platform.

Tenev hit back at this criticism, saying that addressing the frustrations experienced by the most active users will help make the platform better for everyone.

“Improving the quality of service for them trickles down to less active customers,” he said.

Excessive trading on Robinhood’s platform could hurt young investors in the long run, said Catherine Valega, wealth consultant at Green Bee Advisory, adding that the recent market slump could be a time to reevaluate.

“Hopefully with the bursting of the bubble people will catch their breath and we will come back to reality,” she said.

Job cuts

Controlling expenses is another pillar of Tenev’s recovery plan. Robinhood cut 9% of its workforce in April – an abrupt about-face after buying a recruitment company and spending several months hiring and opening offices across the United States, including in New York, Seattle and Charlotte, in North Carolina.

“We’re always looking for ways to become more efficient – the workforce, obviously, is one of the levers,” Tenev said. The company is looking to cut costs in other ways, including having all leaders “do more with less.”

Software and web hosting are also potential targets for spending cuts, especially given Robinhood’s difficult track record of service disruptions. In March 2020, as the pandemic fueled an online trading boom and expanded the company’s user base, its platform went dark for an entire trading day. Lawsuits followed the blackout, which angered patrons for missing a massive gathering.

Robinhood’s sharp decline in shares – they closed Wednesday at $8.90 each, a year after debuting at $38 – fueled speculation that it could be primed for a takeover.

Billionaire Sam Bankman-Fried, CEO of crypto exchange FTX, acquired a 7.6% stake in Robinhood in May, about a year after an investor from both companies introduced him to Tenev. FTX has been in internal discussions about the possibility of a deal, Bloomberg reported in June. Robinhood had not received a formal takeover approach at the time.

Tenev, meanwhile, said negotiations over the deal were not a priority and that Robinhood was focused on creating new products.

“We can do it really, really well as a standalone, public, independent company,” he said.

Regulatory changes are still looming. The Securities and Exchange Commission is assessing changes to how brokers handle retail transactions, threatening one of Robinhood’s main sources of revenue. The agency also expressed worry on “gamification” practices that encourage more commerce.

The pressure on Robinhood to change things isn’t just from early backers. During the IPO, the company made an unusually large percentage of shares available to ordinary investors. One, accountant Mark Swearingen, said he invested about $2,000 in Robinhood stock during the company’s first days on the market. He sold his remaining position earlier this month.

“Even with good news, it seems like they’re still going down,” said Swearingen, 34, from Pennsylvania.

Tenev still seemed relaxed as he discussed the way forward for Robinhood. Sitting outside a room called “Warm Milk” – the conference rooms at the company’s headquarters in Menlo Park are named by popular opinion – he touched on some of the issues that had previously obsessed the company and how it had worked to solve them.

“You don’t hear much about Robinhood being unavailable to customers or our customer service being useless,” he said. “We’ve made incredible improvements to some of these fundamentals. We have gone above and beyond by systematically improving the product and launching new products. There’s a lot more to come.


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