Robinhood is Struggling

Robinhood was created to control the stock market and wrest power from the wealthy, fat alligators of Wall Street and give it to ordinary individuals.

Ironically, currently the company may have no choice but to partner with one of Wall Street’s giant cats who it was trying to take down.

The stock exchange forecasts significant losses, a drop in active users, and a second layoff in August 2022. The stock, which went public more than a year ago, is down 40% this year and is trading nearly 75% below its original offering price.

“They are having to make grown-up business decisions, such as cost reductions and moving out of growth mode,” stated a partner of consulting company cg42, Hugh Tallents.

“It’s becoming clear that they once had unbelievable user growth, but they also had a valuation that was insane.” 

All of this casts a big question mark over the possibility of Robinhood being sold to a larger financial services company. But after crypto billionaire and his FTX CEO Sam Bankman-Fried acquired a stake in Robinhood, gossip about a potential deal has increased in recent months.

Bankman-Fried has denied speculation that FTX is interested in a full acquisition of Robinhood. After rumors of a merger surfaced, the latter did not release a statement addressing the matter.

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Robinhood Contends with Strong Companies

However, competition is tough in the online brokerage universe. Robinhood competes with Wall Street companies such as Fidelity, Charles Schwab, which owns TD Ameritrade, and E-Trade parent Morgan Stanley. 

It also must contend with Coinbase, SoFi, eToro, and WeBull. And with Coinbase gaining a recent upper hand with its collaboration with BlackRock, it has the upper hand from Robinhood. 

Tallents does not believe a huge Wall Street brokerage would want to invest in Robinhood due to the risk. He stressed that Robinhood users are younger and have less money to put in, so a potential purchaser “would need to play a long game and hope they get more affluent.” 

But while the short-term concerns are increasing, Robinhood can look to the bright side with its solid enough financial cushion to keep the operations going for the foreseeable future. 

Robinhood concluded the second quarter with $6 billion on its balance sheet, a decrease from the $6.2 billion in March. Thus, Tallents think the situation isn’t hopeless yet. 

However, the company will need to ease the investors’ concerns about its growth rate.

Read also: Robinhood Decides to Make a New Stock Lending System

Photo: Unsplash

Opinions expressed by Famous Times contributors are their own.