Robinhood cuts losses after transaction revenue drops

https://www.wsj.com/articles/robinhood-cuts-losses-after-transaction-revenue-drops-11667426198

by lxm • 4 years ago

182 164 4 years ago

adoxyz• 4 years ago

Stock market has been in a slump all year, crypto down huge. Close to 100k layoffs in tech (according to layoffs.fyi). I think people got other things on their mind than trading stocks/crypto.

anon23anon• 4 years ago

how times have changed

toomuchtodo• 4 years ago

The Fed giveth, the Fed taketh away.

funstuff0072• 4 years ago

Well, they kept it running long enough for the VC's to get their cash out.

iepathos• 4 years ago

Ironically, it's probably best to buy stocks and crypto when they are in valleys like this rather than at peaks. The unemployment rate is still only 3.5% in the US, so anyone getting laid off is being hired back almost immediately with very little slack. The Fed would actually prefer to see higher unemployment around 6% to better manage inflation so they'll keep interest rates high until they see that happen.

notch656a• 4 years ago

Time that market.

zapt02• 4 years ago

The problem is that many people has less money to go around due to cost of goods and interest rates rising, so it's harder than ever to take advantage of lower stock market prices.

conorcleary• 4 years ago

Average down and buy the dip are real.

twblalock• 4 years ago

Stocks? Sure. But there is no reason crypto couldn’t go all the way to zero.

p1necone• 4 years ago

Stocks don't lose value, they just go on sale ;)

guelo• 4 years ago

The unemployment rate was 3.5% months ago, there is a lag in government reporting. The rate can also vary greatly by industry, a laidoff software engineer is not going to be looking for McDonalds jobs.

slaw• 4 years ago

Dow is 10% higher than pre-lockdowns Feb 2020 and I hear at least since 2017 that stocks are overvalued.

blindriver2• 4 years ago

The problem is that right now it's not a valley. It's a downhill slope. Once it reaches a valley, I agree that it's probably a good place to buy, but we're not there yet!

TuringNYC3• 4 years ago

> Ironically, it's probably best to buy stocks and crypto when they are in valleys like this rather than at peaks.

Half the people in this Robinhood cohort are writing weekly leveraged (non-cash secured) puts and/or put spreads or long calls. With that popular strategy, one big market move and you're wiped out.

JeremyNT• 4 years ago

Ironically, it's probably best to buy stocks and crypto when they are in valleys like this rather than at peaks.

Is this actually a "valley" though? I'm not sure about that. It could be the worst of this recession is yet to come for both types of assets.

Buying at the bottom is a great idea, but the hard part is knowing where the bottom actually is.

JumpCrisscross3• 4 years ago

it's probably best to buy stocks and crypto when they are in valleys like this rather than at peaks

Robinhood was not optimised for investors. It was built to resemble a slot machine.

solumunus• 4 years ago

Tech is still overvalued by any standard metric. We're not deep enough in the valley yet.

yrgulation2• 4 years ago

“In 2022, there were around 1.63 million software developers and software quality assurance (QA) workers employed in the United States.”.

I doubt its the tech layoffs that did it. Maybe the cost of leaving exploding led to less disposable income meaning less people willing to gamble. Also why risk your money when everything seems to be going under?

xeromal• 4 years ago

Cash is also shrinking. Loads of new investors existed thanks to the government stimulus payments. My memory is failing me but I read that after the first few stimulus checks, savings went up 33% for the average american household. (I honestly don't know what the 33% was about but it was a positive change). That's pretty much all wiped out as people lost money. I think that glut of investment was just a temporary thing

ramesh31• 4 years ago

NFTs suddenly now the Beanie Babies they always were.

spaceman_2020• 4 years ago

It's also the volatility. Wild swings within days and weeks. And general uncertainty about the direction of the market. The toughest trading environment for retail traders.

reducesuffering• 4 years ago

Rising interest rates helped lift quarterly net interest revenue to $128 million, more than doubling from the same period a year ago. Chief Financial Officer Jason Warnick said the company has about $17 billion in assets that generate interest revenue.

While Robinhood used to pay a competitive interest rate for cash in the account, it is now 1.5% while Fed risk-free rate is now 3.75%+. You need to pay for Gold subscription to access the decent interest rate.

Square/Block/Cash App also just announced a huge boost in profitability.

While it wasn't feasible in the last years of zero interest, now, digital wallets are profiting off the difference of giving you 0 - 1.5% interest of your sitting cash while they pocket 3.75%+.

pcurve• 4 years ago

It wasn't long ago when I felt 1.2% was a good CD rate. Now I'm canceling all of them to move to online savings account paying 2-2.5x that amount.

throwaway122453• 4 years ago

https://www.schwab.com/cd-rates-test

1-3 month CDs are 3.9%

artificialLimbs2• 4 years ago

Yep. My local credit union is offering 4.5% on an 18 month > $1,000 CD.

throwaway122453• 4 years ago

U.S. Inflation is 8.2%, though. :(

loeg3• 4 years ago

The current I-bond composite rate is 6.9%: https://treasurydirect.gov/savings-bonds/i-bonds/i-bonds-int... . (Usual one-year lockup for I bonds, plus a 3 month interest penalty for redemptions before 5 years, and there's a relatively low limit per person per year. Still.)

philco• 4 years ago

I might be wrong, but most of these programs have partner banks, which take part of the revenue for themselves. I think it's more likely they make Fed Funds minus some take rate from the bank, so maybe Fed Funds - 0.50bps. Point still stands, but I don't think they're making 3.75-4%. Wealthfront is passing through 3.30%, so likely only making 0.25bps on that cash.

kylehotchkiss• 4 years ago

If Robinhood had to close shop, who's a good broker to transfer holdings over to?

whitepoplar• 4 years ago

Fidelity or Schwab

system2• 4 years ago

Fidelity. Very nice desktop and mobile apps. Trustworthy and established. Robinhood cant even be compared to it. While you are at it, get yourself some FNILX stocks and collect dividends on an index.

alphabetting• 4 years ago

Fidelity mobile sucks though. Robinhood is makes gambling savings fun!

missedthecue• 4 years ago

The thing about Robinhood seems to be fee-free options trading. I don't think any other broker does this

ldjkfkdsjnv• 4 years ago

Schwabb if you arent actively trading, tdameritrade if you are. Scwabb customer service is great

hairofadog• 4 years ago

They're merging, so it doesn't really matter a super lot which one you choose. I switched to TD Ameritrade because I like their UI better, but this time next year they'll both be the same thing.

bombcar• 4 years ago

I use TD Ameritrade because the trading tools are top notch.

But I shouldn’t be trading so look at Fidelity.

ikinsey• 4 years ago

Schwab, they have branches everywhere and excellent customer service.

LeafItAlone3• 4 years ago

If the poster was using Robinhood, I suspect that branches might not be cared-about feature.

esotericimpl• 4 years ago

the correct answer is Vanguard imo.

nrmitchi• 4 years ago

I’d say it’s extremely unlikely that Robinhood would actually close shop. Worst case, they get bought for a pittance and customers get migrated over 12-24 months.

throwaway122453• 4 years ago

Schwab or Vanguard.

Vanguard pioneered the low cost index fund and Schwab was one of the original "discount brokers". Their innovations were adopted by every other broker, driving down costs for the small trader. They remain allies of small investors.

bergenty• 4 years ago

This is no good for middle class day traders

mbesto• 4 years ago

Fyi - Vanguard is only good for simple, long term holding. If you are interested in a little more day trading type activity, then Schwab, TD, and Fidelity are much better.

dragontamer• 4 years ago

Vanguard's got excellent funds and ETFs, but they're legendary in terms of having some of the worst customer support for their brokerage account.

Schwab/TD Ameritrade on the other hand, has kinda bad ETFs but have really good customer service. Besides, you can buy Vanguard ETFs / Mutual Funds in your Schwab account.

Go for customer service. There's some minor benefits in terms of how quickly you can enter / exit Vanguard positions if you get a Vanguard account, but overall its a better idea IMO to get a brokerage account with humans on the telephone whenever issues come up.

-------

I'm also in E-Trade and they've worked out so far for me.

The one I'm most interested in is probably Fidelity? Good overall reviews, apparently pretty good customer service, and the ETFs / Mutual Funds / Bonds they offer seem pretty good too.

prasadjoglekar• 4 years ago

Fidelity, Schwab and Vanguard in that order. All 3 offer ETFs at $0 fees, and all have comparable index funds. I've found Fidelity's website to be the most usable, followed by Schwab. Vanguard had a dated, but simple and functional interface that they've recently revamped to be more slick but less usable.

whoopdeepoo4• 4 years ago

Vanguard outsourced most of their IT department overseas a few years ago. They certainly aren't allies of American IT workers

LeafItAlone3• 4 years ago

Depends what you are trying to do.

Vanguard, Fidelity, Schwab, TD Ameritrade (while they are still separate-ish) all have different pros and cons.

What do you need?

artificialLimbs2• 4 years ago

If they didn’t have to close shop, it’s a good time to move from that steaming pile of trash.

Fidelity has been good to me.

scottLobster• 4 years ago

I transferred from Robinhood to Fidelity years ago and never looked back. Mobile app and website work great, had to call customer service twice and they were always helpful, good ETF screener tool. They have local branches in most major metro areas for in-person customer support as well. Commission-free trades just like Robinhood. Seamless integration with most tax software.

I just pile leftover savings into Small-Cap Value funds though, so my needs are rather minimal.

dig1• 4 years ago

Interactive Brokers. If you are an occasional trader, go with the Lite option - it is commission-free but relies on pfof, just like RH. If you are more serious, go with Pro and you'll get routing to exchange in most cases.

TWS (their desktop app) has many options and target pros. However, I haven't used their web/phone apps.

If Robinhood had to close shop

I doubt that will happen. Citadel will jump in and inject money, just like they did with Plotkin's Melvin Capital.

SamReidHughes7• 4 years ago

IBKR's phone app is miles ahead of Robinhood's or Fidelity's.

prostoalex• 4 years ago

If the goal is to have your portfolio on autopilot with index funds, Fidelity’s zero-cost FZROX, FZIPX, FBILX and FZILX are only available through Fidelity itself.

SamReidHughes7• 4 years ago

They have a big pile of cash, and at their current burn rate, they'll last for a long time. They have huge margins and their loss is from fixed cost R&D. They're receiving positive net deposits from a relatively young customer base and the total assets they have under management is growing.

To add some numbers: they're burning $175/quarter, which includes severance payouts from their recent layoff, on $6954 of assets, which includes a $6187 pile of cash. So that's 8.8 years of runway if they didn't cut costs or grow revenue further.

And their product also has a ton of room to improve -- once it gets IRAs, that would remove the main reason its more boring customers find other brokers.

loeg3• 4 years ago

Fidelity or Vanguard.

collegeburner2• 4 years ago

interactive brokers 100%. best rates you can get on margin, high quality tech. be aware they will sometimes move margin requirements and give you limited time to cover if something starts looking sketchy, sometimes a bit more aggressive than other retail brokerages. but not a problem if you manage right.

friendlypeg• 4 years ago

Schwab is great. One thing I like is you need to call their team on the phone and answer a few questions before you can even trade the most basic option types (i.e. secured short put, covered call). Robinhood instead grants margins and advanced option strategies to 18 years old willy nilly. And as others have mentioned, they have great customer service. I can contact them with live chat during trading hours very quickly.

MattyMc• 4 years ago

I suspect that Robinhood's active user count will be highly correlated with market/crypto returns.

LeafItAlone3• 4 years ago

Interesting thought. Is Robinhood that common in the crypto world? I know they support it, but I would have guessed it was an “also” feature rather than a driver.

dcolkitt• 4 years ago

Crypto was responsible for approximately 35% of Robinhood's revenue in 2021.

tnel77• 4 years ago

Now that Robinhood will let you send your crypto to a hardware wallet, it’s not a bad method for DCAing into a coin of your choice.

eddywebs• 4 years ago

I believe the reason for the correlation with crypto market and Robinhoods active user count be the demographics of people who invest heavily in crypto;Gen X, millennials and zoomers. Thoughts ?

jesuscript• 4 years ago

Could be. Regardless of age, beginner investors will have an easier time understanding crypto. There’s only one thing to understand, either many people will use crypto or not (adoption increases, increasing the value of the coin). Easy to understand.

Compare that to EPS and Net revenue of Boeings third quarter results and forward guidance.

irjustin4• 4 years ago

What is this in the context of the wider market vs other Retail brokers?

I don't think this is a knock against RH more a description of what's happening in main-street.

throwup• 4 years ago

I certainly think it tells us something about RH. You don't see Vanguard or Fidelity losing a third of their userbase in a year.

potatolicious• 4 years ago

Exactly this. RH has a business model closer to casinos than it does to Schwab or Fidelity.

The headline feature for RH is "fee-free trading" which is fine, but once you read past the headline you'll come upon a vast amount of gamification, calls to action, and every other tool borrowed from gacha games and gambling generally.

In that vein I would expect their corporate performance to track more closely with gambling and F2P gaming peers than they would track more established stock trading apps.

More cynically RH's product was making people feel like geniuses in a bull market. The bull market is now gone.

melenaboija• 4 years ago

I think it tells that RH did what they intended to do, pull into stock market non traditional investors making it look as an easy way to make money.

The strategy worked for the recent years but these investors probably will be the first ones to jump off the boat when things start looking bad.

irjustin4• 4 years ago

You don't see Vanguard or Fidelity losing a third of their userbase in a year.

I can't read the article, but you define "monthly active users" as a user exiting the platform i.e. pulling their money out?!

Originally, I had assumed it was "users who don't open the app/website" but expectation difference caused me to look it up:

Robinhood defines a monthly active user as a "unique user who makes a debit card transaction, or who transitions between two different screens on a mobile device or loads a page in a web browser while logged into their account, at any point during the relevant month. A user need not satisfy these conditions on a recurring monthly basis or have a Funded Account to be included in MAU." [0]

I have a Vanguard, I haven't opened it in a month. By the above MAU definition, Vanguard lost me too.

Again, this _alone_ doesn't tell us that RH is doing poorly vs other Retail Brokers. They could be, but not enough info.

My take is - most people don't want to see their ultra red portfolio and are just not opening the app.

[0] https://www.fool.com/investing/2022/05/09/robinhood-losing-m...

Test0129• 4 years ago

RH was a joke from the start. To invoke a no true scotsman, I know literally zero actual traders using the platform. Value investors like Schwab for it's customer service. Sometimes they prefer other firms (Fidelity). Day traders, etc almost universally use Interactive Brokers. Having done some profitable trading in my day I can tell you that IB's platform is arguably the best if your capitalization is less than 500,000 (at these capitalizations you can often find more bespoke brokers with even better access than IB, especially in futures). Their "pro" tier allows direct exchange access, and their API is complete (though antiquated). I'm not sure if they still do it but I distinctly remember them offering a FIX API if you wanted as well. IB's pro features do take some money. You have to pay for exchange access, and you pay per leg. But, as the saying goes, if you aren't paying you are the product (pfof).

RH made it's money through pfof and capturing COVID relief checks.Their brilliant corner in the market was a frontend app so easy to use that you wouldn't even think about the money you're losing. Since RH's release, most brokers offer similar (if not equal) platform usability and RH's lunch has been completely eaten. I would be surprised if it survived a few more years before either going under or being cannibalized by actual brokers.

SamReidHughes7• 4 years ago

RH (and presumably other commission-free brokers) sometimes beat the competition on transaction costs, particularly with low-priced contracts, or where you stand to benefit from blending in with other naive option traders. I maintained cash with them just for that purpose, for a while.

As that's no longer applicable for me, I find more and more reason to move all my accounts to Interactive Brokers. The entire history of their nickel-and-diming fees was easily paid for by letting me enter a single position one day in 4AM-7AM pre-market trading hours, which those other basic brokers (including IBKR Lite) don't support.

RH's health is fine. They are still getting positive net deposits, and they're still adding features. It's a great business to be in. They have insanely high margins and their customers' default behavior is to put more money into them. Once they have IRAs, there won't be a good reason for normal investors who just bag-hold stocks to switch away. They have $6 billion of cash, which gives them a ton of runway.

skymast• 4 years ago

Why would anyone trust a financial institution with their money when they have acted like Robinhood as acted?

This is a fundamental question.

njovin• 4 years ago

I closed my account with them during the GameStop debacle and never looked back. I wasn't trading GME but was appalled at their reaction.

shahmeern• 4 years ago

what exactly were you appalled at?

wcoenen• 4 years ago

I don't think Robinhood had any choice there. Trades don't settle instantly. Robinhood needs to post collateral with the Depository Trust & Clearing Corporation while settlement is pending, and the required collateral goes up with volatility. During the "GameStop debacle" they had to raise billions of USD in additional capital for this purpose, so no wonder they had to hit the brakes.

SamReidHughes7• 4 years ago

Robinhood is perfectly trustworthy with your money. This is a completely nonsensical smear.

freefruit• 4 years ago

You are the product for Robinhood, as they are selling deal flow. Vladimir Tenev will always put his customers first since they are paying for the deal flow information.

How can you trust any company that has you as the product?

whoopdeepoo4• 4 years ago

They have the best recurring investment tool

Can anyone name a better one?

mozman• 4 years ago

What about wealthfront?

eBombzor• 4 years ago

3% interest

collegeburner2• 4 years ago

i think this has more to do with the market tanking. nobody wants to log on to a sea of red. robinhood didn't start doing anything new as of september to drive people off.

TheLoafOfBread• 4 years ago

Stock does not go up, people does not care.

jesuspiece• 4 years ago

Gee I wonder why

bob1029• 4 years ago

I've been back and forth over robinhood vs fidelity vs IBKR for a few years now.

I do not do any heavy day trading, but I do like to buy a few shares of things throughout the day, every day.

As a consequence, the user experience in mobile form factor is a big aspect for me. I understand for any professional in the space, this is perceived as lunacy. I am no professional.

Once IRA support is added, I'll be locked in for life. I don't understand how someone can use the fidelity or IBKR mobile apps and think "yes this is all ok" after spending 5 minutes in the RH app.

webinvest• 4 years ago

https://archive.ph/5URwT

Robinhood cuts losses after transaction revenue drops

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