A really bad day at a once high-flying Silicon Valley startup just a got a whole lot worse for many (now former) employees.
Robinhood (HOOD) , the troubled brokerage that attracted the attention of Gen Z investors, can not catch a break and is laying off 23% of its employees.
Things began with the company announcing it had been issued a multi-million dollar fine. Ironically enough, the problem had to do with understaffing in one of its key areas.
CEO Vlad Tenev said the majority of the layoffs will occur for people working in the operations, marketing and program management departments, according to a blog post.
Earlier in the year, Tenev said the company would reduce its workforce by 9%, but that cut was not sufficient financially.
"This did not go far enough," he said.
"We have seen additional deterioration of the macro environment, with inflation at 40-year highs accompanied by a broad crypto market crash. This has further reduced customer trading activity and assets under custody," Tenev said in the blog post.
"In this new environment, we are operating with more staffing than appropriate. As CEO, I approved and took responsibility for our ambitious staffing trajectory – this is on me," he said.
The current round of cuts involve 780 employees, according to a company SEC filing.
They come as part of a company reorganization into a general manager structure. Robinhood said it will incur $30 million to $40 million of cash restructuring and related costs tied to the layoffs.
In addition, the company's Chief Product Officer Aparna Chennapragada is leaving the company.
The layoffs come just a year after Robinhood came public and 18 months after it shot to Wall Street’s attention as a preferred venue for day traders caught up in the meme stock mania in which short squeezes organized in online chat rooms sent shares of companies like GameStop (GME) and AMC Entertainment (AMC) soaring.
Details of the company's future operations will provided when the company conducts its all-hands meeting on Thursday, including a reorganization of its structure, Tenev added.
"We will be moving to a General Manager (GM) structure, where GMs will assume 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 with Robinhood through October 1, 2022 and receive their regular pay and benefits (including equity vesting)," Tenev wrote. "They will also be offered cash severance, payment of COBRA medical, dental and vision insurance premiums and job search assistance (including an opt in Robinhood Alumni Talent Directory)."
Decline in Users
Robinhood is facing more pain. The company, which went public in July 2021 at $38 per share reported second quarter revenue of $318 millon compared to $321 million estimated, according to Refinitiv.
The brokerage also reported a loss of 34 cents per share compared to 37 cents estimated, according to Refinitiv.
Robinhood’s total net revenue of $318 million was an increase from $299 million during the first quarter, due to the revenue generated from cryptocurrency activities and net interest.
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.
Earlier in the day, Robinhood's cryptocurrency unit was hit with a $30 million fine by New York's Department of Financial Services which accused it of violating anti-money laundering and cybersecurity regulations.
Shares of Robinhood have fallen by 76% during the past year as the Gen Z investors it sought appear to have sustained significant losses when cryptocurrency prices plummeted while the stock market tanked on concerns of high inflation and fears of recession as the Federal Reserve raises rates.
Robinhood was trading at $9.07 in after hours trading. Its 52-week high of $85 was reached shortly after going public.
Robinhood has been scrutinized by regulators during the past couple of years and paid $135 million in fines. In 2020, the brokerage paid $65 million when the SEC said it mislead customers and paid a $70 million fine in 2021 when the industry's regulator, the Financial Industry Regulatory Authority, said it mislead customers and was responsible for outages.
Since its launch, Robinhood sought to democratize investing and attract a new generation of investors, but has been faced a slowdown in trading volumes affecting both the cryptocurrency market and the broader financial markets.