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A really bad day at a once-rising Silicon Valley startup just got a whole lot worse for several (now former) employees.
Robin Hood (Hood) – Get the Robinhood Markets Inc. reportthe struggling brokerage that caught the attention of Gen Z investors can’t break even and is laying off 23% of its employees.
Things started with the company announcing that it had been fined several million dollars. Ironically, the problem had to do with understaffing in one of its key areas.
CEO Vlad Tenev said the majority of the layoffs would occur for people working in the business, marketing and program management departments, according to suspension.
Earlier in the year, Tenev said the company would cut its workforce by 9%, but that cut was not sufficient financially.
“That didn’t go far enough,” he said.
“We have seen additional deterioration in the macroeconomic environment, with inflation at 40-year highs accompanied by a broad collapse of the cryptocurrency market. This has further reduced client trading activity and assets under custody,” Tenev said in the blog post .
“In this new environment, we are operating with more staff than appropriate. As CEO, I have approved and taken responsibility for our ambitious staffing path – that’s for me,” he said.
The current round of cuts includes 780 employees, according to the company’s SEC filing.
They come as part of a corporate reorganization to a general manager structure. Robinhood said it will incur $30 million to $40 million in cash restructuring and related costs associated with the layoffs.
Additionally, the company’s Chief Product Officer Aparna Chennapragada is leaving the company.
The layoffs come just a year after Robinhood went public and 18 months after it caught Wall Street’s attention as a preferred venue for day traders caught up in the stock meme frenzy in which short squeezes staged on online chat rooms sent shares of companies such as the GameStop (GME) – Get the GameStop Corporation report and AMC Entertainment (AMC) – Get AMC Entertainment Holdings Inc. Class A Report rising.
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Details of the company’s future activities will be given when the company holds its meeting on Thursday, including the reorganization of its structure, Tenev added.
“We will move to a General Manager (GM) structure, where GMs will take broad responsibility for our individual businesses,” he said. “This change will flatten hierarchies, reduce cross-functional dependencies and remove redundant roles and positions.”
Employees affected by the layoffs “will be offered the opportunity to remain employed by Robinhood through October 1, 2022 and receive their regular salary and benefits (including equity vesting),” Tenev wrote. “They will also be offered cash compensation, payment of COBRA medical, dental and vision insurance premiums and job search assistance (including selection from Robinhood’s alumni talent list).”
Reject users
Robinhood faces more pain. The company, which went public in July 2021 at $38 a share, reported second-quarter revenue of $318 million versus an estimated $321 million, according to Refinitiv.
The brokerage also reported a loss of 34 cents per share compared with 37 cents estimated, according to Refinitiv.
Robinhood’s total net income of $318 million was up from $299 million in the first quarter, driven by income from cryptocurrency and net interest activities.
Total net revenue during the second quarter of 2021 was $565 million.
The report also showed a decline in monthly active users and assets under custody.
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Earlier in the day, Robinhood’s cryptocurrency unit was fined $30 million by the New York Department of Financial Services, which accused it of violating anti-money laundering and cybersecurity regulations.
Shares of Robinhood have tumbled 76% over the past year as the Gen Z investors it sought out appear to have suffered significant losses when cryptocurrency prices plummeted, while the stock market tumbled on worries about high inflation and recession fears as the Federal Reserve raises interest rates.
Robinhood was trading at $9.07 in after-hours trading. The 52-week high of $85 was reached shortly after it went public.
More fines
Robinhood has come under scrutiny from regulators over the past two years and has paid $135 million in fines. In 2020, the brokerage paid $65 million when the SEC said it misled customers, and it paid a $70 million fine in 2021 when the industry regulator, the Financial Industry Regulatory Authority, said it misled customers and was responsible for outages.
Since its launch, Robinhood has sought to democratize investing and attract a new generation of investors, but has faced a slowdown in trading volume that affects both the cryptocurrency market and the broader financial markets.
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