What’s next for Robinhood?

On Tuesday, Robinhood CEO Vlad Tenev announced that the online brokerage would lay off 9% of its 3,800-person full-time workforce. Shares dipped by more than 5% after news of the layoffs broke.

Why should we care?
With Robinhood stock now worth 74% less than its sticker price at launch, the company’s troubles signal a worrying future for retail wealthtech—not to mention crypto companies like Coinbase that target small traders—while also raising the prospect of a Robinhood acquisition by a major bank or financial institution. In Q1 2021, retail traders accounted for 24% of equity trading volume in the U.S.; that proportion has now dipped to 17%. Established brokerages have erased Robinhood’s no-fee stock trading advantage by adopting the same pricing strategy, meaning they can cater to both retail as well as institutional investors, making for a more diversified (and resilient) client portfolio as compared to Robinhood’s. Robinhood has attempted to weather the storm by also launching crypto-related trading features, but retail appetite for crypto has waned as well—worrying news for consumer crypto trading platforms like Coinbase. According to Ben Carlson of Ritholtz Wealth Management, Robinhood appears ripe for an acquisition by Goldman Sachs or Fidelity. Carlson identifies Robinhood’s excellent UX and young client base as its greatest assets: the latter especially for Goldman, which has doubled down on targeting younger customers through its Marcus line of products. But Fidelity, which is privately held, might be better suited to buying Robinhood because it doesn’t need to worry as much about Robinhood’s tarnished reputation (as compared to a publicly traded company that has to answer to opinionated shareholders). And any acquisition would have to handle Robinhood’s significant losses, in addition to a potential ban by the SEC on Robinhood’s payment-for-order-flow business model. Whatever the end result, Robinhood’s mission to “democratize finance” has fewer clients—and employees—along for the ride than it did a year ago.