It’s been one year since Robinhood went public. And to say that the online broker’s performance has been disastrous would be a massive understatement. If someone were to write a kids’ book about it, they could title it “Robinhood and the Terrible, Horrible, No Good, Very Bad Year.”
The stock debuted at $38 a share and fell more than 8% on its first day of trading. Robinhood then briefly captured the attention of the momentum traders on Reddit who originally shunned it and soared as high as $85 in its first week of trading. It has been all downhill since then, though.
Shares now trade around $9, more than 75% below their IPO price and nearly 90% from their all-time high. Robinhood has been hit hard by the plunge in the broader stock market and crypto crash, which have scared away many would-be investors.
Robinhood has also been criticized for making investing seem more like gaming, which may have contributed to the meme mania frenzy in stocks like AMC (AMC) and GameStop (GME). That bad press hasn’t helped.
“While Wall Street and finance more generally can and should be democratized, the Robinhood model based on maximizing frequent high-risk trading, prompted by predatory gamified apps to generate as much payment for order flow as possible, is not how,” wrote Dennis Kelleher, co-founder, president and CEO of Better Markets, a nonprofit investor advocacy group, in a report about the 1-year anniversary of the IPO.
The specter of increased regulation is also a big concern. The Securities and Exchange Commission and Financial Industry Regulatory Authority have already charged Robinhood with misleading investors and have fined the company as a result. The SEC is also expected to soon propose even stricter rules for online brokers.
And if all that weren’t enough, competition is fierce in the online brokerage world too. Robinhood has to contend with upstarts like Coinbase, WeBull, SoFi and eToro as well established giants such as Fidelity, Charles Schwab (SCHW) (which now owns TD Ameritrade) and E-Trade parent Morgan Stanley (MS).
The company likely needs to turn things around soon if it hopes to remain independent. Robinhood has been bleeding red ink since the IPO, and it announced a big round of layoffs earlier this year.
Robinhood will report its results for the second quarter on August 3. Wall Street is not particularly hopeful about them.
Analysts are forecasting another loss, and they are also predicting that revenue plunged about 40% from a year ago.
The controversial trading app, founded in 2014, had boomed during Covid-19, amid historic market turmoil that has coincided with millions of Americans working from home.
Making matters worse for the company? Wall Street has a dour outlook for the stock. Analysts tend to be more bullish than bearish, particularly for new companies that big investment banks helped bring public.
But of the 15 analysts that follow Robinhood, 7 have it rated a lukewarm “hold” and 3 have an outright “sell” on the stock.