Robinhood CEO rejects prospect of deal as shares trade higher on earnings

Robinhood shares closed up nearly 12% on Wednesday, following a smaller-than-expected quarterly loss and the announcement that it was laying off 23% of its staff.

In an earnings call, Robinhood chief executive officer Vlad Tenev shut down prospects for a deal, adding that the retail trading platform itself has about $6 billion available to acquire companies “that can help us accelerate our roadmap.”

With Robinhood’s share price under pressure due to slumping equity and crypto markets in recent months, analysts had asked if the company might do a deal with rival retail brokerage Charles Schwab or crypto trading platform FTX, whose founder Samuel Bankman-Fried bought a 7.6% stake in Robinhood in May.

Menlo Park, California-based Robinhood saw revenue fall 44% in the second quarter ended June 30, as trading volumes eased from last year’s frenetic pace when retail investors used its application to pump money into so-called “meme stocks.”

However, investors cheered Robinhood’s move to reduce expenses via the layoffs, which come on top of the 9% of full-time staff cut earlier this year. The company also said it would change its organizational structure to drive greater cost discipline.

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Also on the call, Tenev warned that a potential recession, the first experienced by the company’s predominantly young customer base, could dent activity on its platform.

“Customers are seeing this high inflation along with high interest rates, bear markets and stocks and a crypto winter. And this all adds up to less money to spend and therefore, less to save and invest,” he said.

Robinhood on Tuesday posted a net loss of $295 million for the second quarter. Stripping out restructuring charges, it made a loss of 32 cents per share, versus analyst estimates of a loss of 37 cents per share according to Refinitiv IBES data.

Analysts welcomed Robinhood’s bid to get its expenses under control, suggesting the move could be positive for the company’s flailing stock.

“We believe these cost reductions will likely drive the company to profitability in the near term and could drive shares higher,” Goldman Sachs analysts wrote in a note.

Robinhood and other fintech stocks bore the brunt of a broader market decline, as a risk-off environment coupled with higher funding costs and sluggish e-commerce growth led traders to pull back from high-growth tech shares so far this year.

Shares of Robinhood, which were sold at $38 a share in its initial public offering last year, have shed more than 70% since the company’s debut on NASDAQ.

In common with other high-growth tech firms, Robinhood has yet to turn a profit since its market debut, although some analysts took Tuesday’s announcement as a sign the company is on an upward trajectory.

“We believe that once the market digests the ‘shock’ from the layoff’s sheer size, investors will shift focus to fundamentals and (the) path to profitability,” Mizuho analysts said in a research note.

Robinhood has been under intense scrutiny following last year’s meme-stock saga, which sparked a slew of federal and state probes. On Wednesday, Robinhood also disclosed that the U.S. Securities and Exchange Commission has been probing its compliance with short selling rules since October 2021.