Earlier this week we wrote that the glory days of meme stocks appear to be over. Same goes for the trading app that propelled them to fame.
Robinhood stock fell 12% after hours Thursday when it revealed a wider loss than expected and projected Q1 revenue that left investors asking, “…that’s it?”
Investors have been asking lots of tough questions of the company recently. Robinhood’s stock has cratered 84% from its high last August. It was once valued at ~$60 billion; now, it’s worth less than $10 billion.
- Sign of the times: Robinhood, which had been the king of the App Store, has fallen to #16 in the finance category alone. Even the IRS app is more popular.
To explain what happened, let’s rewind
One year ago today, Robinhood endured a level of internet wrath typically reserved for Pepsi commercials when it restricted trading on GameStop and other highly volatile stocks. After a period of confusion, Robinhood explained that these “extraordinary circumstances” forced it to limit trading in order to meet clearinghouse deposit requirements set by regulators.
While the trading pause was temporary, its effects still linger.
- Robinhood was hit with lawsuits alleging the restrictions caused financial harm to individual traders, and paid out its first arbitration award earlier this month.
- It also suffered significant reputational damage. Before January 28, 2021, it was seen as the champion of the individual trader—after, it was considered the bedfellow of Wall Street.
In a recent statement on the events of last Jan. 28, Robinhood said it took several steps, including strengthening its net capital position and boosting its compliance and risk infrastructure, so that trading restrictions would never happen again.
Big picture: With stock and crypto prices fluctuating wildly each day in early 2021, the Robinhood app was appointment viewing for a new generation of individual investors. But the app has become less attractive now that meme stock mania has faded, markets are jittery over interest rate hikes, crypto prices are down, and hyperactive day trading has been partially replaced by “buy and hold” strategies, Bloomberg Opinion’s Jared Dillian notes.
Looking ahead…with a share price that’s in the dumps but also a large and desirable user base, Robinhood may become a takeover target, some analysts argue.—NF