Robinhood Wants to Grow Up The app at the center of meme-stock frenzy now wants your retirement money Robinhood co-founders Vlad Tenev, left, and Baiju Bhatt were classmates at Stanford. IAN BATES FOR THE WALL STREET JOURNAL By Hannah Miao Updated Sept. 16, 2023 12:13 am ET 44 RESPONSES Explore Audio Center Stuck at home during the pandemic, amateur investors banded together on Reddit forums, sparking eye-popping rallies in meme stocks like GameStop and AMC Entertainment . The founders of the popular trading app Robinhood HOOD 0.95%increase; green up pointing triangle , Vlad Tenev and Baiju Bhatt, made it rain confetti on customers’ screens after their first trade, and lived the life of frat-bro entrepreneurs. That’s how the newly released movie “Dumb Money” paints the story of Robinhood. Now, the world has moved on. Day trading has lost its allure. The real Robinhood wants to grow up. The app at the center of the meme-stock frenzy is trying to get users to do more than day trade. It is looking more like a financial supermarket, offering retirement accounts, 24-hour trading and higher yields on customers’ cash. “Over the last two years, we have been a company that’s been fairly misunderstood,” said Bhatt, now Robinhood’s chief creative officer. Neither Tenev nor Bhatt have seen the film, and neither executive worked on the movie. A rapid rise in interest rates last year upended the investing paradigm of the past decade – and hit Robinhood at its core. Stocks and cryptocurrencies don’t look as appealing now when plenty of higher-yielding investments with little risk are available. The number of monthly active users on Robinhood has roughly halved. Revenue from trading has shriveled, and customer growth has fallen off a cliff. Robinhood’s evolution from a flashy startup to a more staid financial-services firm has been rocky at times. The company has expanded and downsized its workforce in rapid succession over the past few years. Shares of Robinhood, which went public in 2021, have dropped about 85% from their all-time high, even with a roughly 31% rebound this year. Looming over it are the lasting effects of the meme-stock trading frenzy. Many customers felt betrayed when Robinhood, along with other brokerages, temporarilyrestricted buying of some hot stocks. Regulators have circled, claiming Robinhood makes it too easy for newbie investors to make risky bets. “Over time, you’ve seen Robinhood transition into a company…that provides a comprehensive set of services for a wide range of our customers’ financial needs,” chief executive, Tenev, said in an interview. Robinhood has plunged into retirement investing, an area long-dominated by more established brokerage firms. Since it launched traditional and Roth investment retirement accounts in January, customers have opened more than 325,000 IRAs on the platform, with assets in those accounts surpassing $1 billion. Robinhood gained millions of users during the GameStop craze. But many have left as interest rates have gone up. CEO Vlad Tenev is now focused on growing Robinhood into more than just a trading app. WSJ sat down with him to hear his plans. Photo Illustration: Adam Falk Fidelity had more than 14 million IRA accounts with an average balance of roughly $114,000, as of the end of June. Charles Schwab reported more than 2.4 million corporate retirement plan participants in the second quarter. In the process of developing Robinhood’s retirement product, Bhatt met last summer with a group of customers in Cincinnati. He asked how many of them had more than one job. Most of the people in the room raised their hands. His time in Cincinnati signaled that Robinhood’s retirement accounts should appeal to customers like gig workers or freelancers who don’t have access to a corporate 401(k) plan. “One of these light bulbs went off. We were like, ‘Whoa. There’s a trend that’s changing here,’” Bhatt said. Robinhood matches 1% on eligible IRA deposits if customers keep those funds in the account for at least five years. Eligible funds include new contributions up to users’ annual limit and transfers or rollovers from other retirement accounts. It bumps the match to 3% for Robinhood gold premium subscribers, who pay $5 a month for extra features like high yield on uninvested cash in their regular brokerage account. Robinhood says it offers the only IRA with a match, no employer needed. The brokerage had considered moving into the retirement account business before, around 2018, but company executives decided instead to focus on developing fractional shares, which allow users to buy a portion of a stock for as little as $1. Then, when its user base ballooned in 2020 and 2021, projects like retirement, designed for Robinhood’s long-term growth, got sidetracked as employees had to put out fires and keep up with customer demand. The Robinhood headquarters in Menlo Park, Calif. This year, Robinhood launched retirement accounts, hiked the yield it pays on customers’ cash, bought a credit-card startup and rolled out 24-hour trading.IAN BATES FOR THE WALL STREET JOURNAL During the Covid-19 pandemic, Robinhood staffed up quickly to keep up with the explosive growth. It swelled to 3,800 employees at the end of 2021 from fewer than 300 three years earlier. Now Robinhood, like many other companies, is focused on slashing costs and diversifying its business. Robinhood reported its first profitable quarter as a public company for the three months ended in June. This year for the first time, the company has generated more revenue from interest-related business, like earning yield on cash and securities lending, than it has from trading. The company has cut more than 1,000 employees in three rounds of layoffs since April 2022. Several executives have left over the past couple years, including Robinhood’s chief marketing and communications officer, its chief product officer, chief operating officer and a senior vice president of engineering. By fall 2022, Robinhood had closed its new office in Charlotte, N.C., the banking hub of the South. It laid off most of its new hires there. It terminated a 12-year deal with the state that could have paid out millions of dollars in reimbursements in exchange for the job creation. The whiplash in hiring has left a mark on company culture. Former employees describe a divide between the newer staffers and the “Hoodies” who had been there during Robinhood’s early days. Pandemic-era hires often came from huge tech companies, like Google and Facebook , or old-school brokerages, such as Fidelity and Schwab. They tended to work in a more bureaucratic way with extensive reviews and processes, said some former employees. Xiaote Zhu started working at Robinhood fresh out of college in 2017. She thinks fondly of pre-2020 Robinhood, when colleagues organized a camping trip to Yosemite National Park, and hosted oyster tastings in the courtyard of the ranch-style, Menlo Park, Calif., headquarters. “People were mission driven and we really thought of it as the once-in-a-lifetime opportunity to make an impact,” said Zhu, who left Robinhood in 2022. “When we grew rapidly during the pandemic, we lost the culture.” When Tenev and Bhatt, Stanford University classmates, founded Robinhood a decade ago, they set out to bring trading to the masses and hired young tech whizzes to help build the app. Some employees were avid traders themselves, discussing stocks and investment ideas during lunch breaks. One software engineer was known to put his entire paycheck into Tesla shares and dogecoin, a cryptocurrency. Robinhood debuted in Apple ’s App Store at the end of 2014 and drew in customers, in part, by being a pioneer in zero-commission trading. Customers liked Robinhood’s sleek, simple app design and got perks like free stock for joining. In 2019, other established online brokerages, such as Charles Schwab and TD Ameritrade, followed suit and eliminated commissions for online trades. Recently, Robinhood has been recruiting some early employees to come back to the company. It hired back one of its first-ever engineers, Edmond Wong, who left in 2022. John Reinstra is another returning engineer, who started as an intern in 2017 and left at the end of 2021. “I saw the old Robinhood I loved, for the first time in years. The rebellious underdog on a super ambitious, crazy mission,” Reinstra wrote in a blog post after visiting the office this summer. Robinhood’s latest endeavor into changing how people invest is 24-hour trading. Earlier this year, it became one of the first U.S. brokerages to offer trading in selected stocks—like Amazon.com , Apple and Tesla—24 hours a day, five days a week. At Robinhood’s headquarters, a light-up sign saying “24HR” adorns the common space where employees break for lunch. The company hasn’t reported numbers on volumes or users in 24-hour trading, but said the product has seen elevated user engagement around companies’ earnings reports, which typically take place before or after regular market hours. Robinhood routes nighttime orders to a trading platform called Blue Ocean that runs an overnight session, where market-making firms take the other side of investors’ trades. “If I live on the West Coast, why am I abiding by East Coast hours?” said Steve Quirk, chief brokerage officer. “I think in five years, we’re going to look back and say, ‘I can’t believe we ever had a time when we didn’t do it around the clock.’” Robinhood also expanded into credit cards by buying startup X1 this year and has said it sees opportunity for further acquisitions, with $6 billion in cash and investments on hand. It plans to launch in the U.K. later this year and roll out futures trading next year. During the pandemic, Robinhood went on a hiring spree to meet demand of a spike in users, many trading meme stocks. It has been in a mode of cutting costs and diversifying its business since interest rates went up. Robinhood co-founders Baiju Bhatt and Vlad Tenev celebrated on Wall Street the day of the company's IPO in 2021.AMIR HAMJA FOR THE WALL STREET JOURNAL Still, the regulatory fallout from the 2021 meme-stock mania continues to cloud Robinhood’s trajectory. The Securities and Exchange Commission has proposed rules that would overhaul payment for order flow, the model Robinhood uses to make money without charging commission on trades. The brokerage routes customer orders to high-speed trading firms and takes a cut of their profit. The SEC has also moved to impose guardrails on how brokerages use technology to guide customers. After Robinhood and others temporarily restricted buying of certain stocks during the height of the trading frenzy, some customers accused the brokerage of helping hedge funds that had been betting against the shares. Users pulled roughly $4 billion of account assets off Robinhood and into other brokerages that quarter, more than eight times the amount transferred each quarter the year prior, according to a company filing. Tenev later landed in front of Congress. He said the company imposed the trading restrictions after a hefty collateral call from its clearinghouse and maintained that Robinhood never colluded with hedge funds. Jason Warnick, Robinhood’s chief financial officer, spent two decades of his career at Amazon and watched the company grow from an online bookstore to an e-commerce behemoth. He said Robinhood’s current state reminds him a lot of where Amazon was when he started there in 1999. “The early days aren’t behind us yet,” he said of Robinhood. “I think we’re still just getting started.” Robinhood quarterly total net revenuesSource: Robinhood Transaction-basedNet InterestOther2021'22'230100200300400500$600million Write to Hannah Miao at hannah.miao@wsj.com
Why would you ever touch Robinhood when there is IBKR offering everything RH does but better, including funds rates on uninvested cash, a debit card, 401k/IRA desicated tools and reporting etc? Especially since RH is known for all the flaws it has and had
HOOD has been moving between 7 and 13 for many weeks already. So very difficult for it to grow beyond 13 feet / dollar or whatever.