Robinhood May Need Wall Street Help

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Robinhood was made to dominate the stock market and take away the influence of the rich fat alligators on Wall Street and give it to ordinary people.

Interestingly, today the company may have no choice but to team up with one of Wall Street’s giant cats who it was trying to bring down.

The stock exchange forecasts significant losses, a drop in active users, and a second layoff in August 2022. The stock, which went public more than a year ago, is down 40% this year and is trading nearly 75% below its original offering price.

“They are having to make grown-up business decisions, such as cost reductions and moving out of growth mode,” stated a partner of consulting company cg42, Hugh Tallents.

“It’s becoming clear that they once had unbelievable user growth, but they also had a valuation that was insane.” 

All of this leads to a big question mark on the possibility of Robinhood selling itself to a larger financial services company. However, gossip about a potential agreement has hiked these past few months following crypto billionaire and FTX CEO Sam Bankman-Fried’s purchasing a Robinhood stake. 

Bankman-Fried denied any speculation of an interest in a full takeover of Robinhood by FTX. After the merger rumors surfaced, the former did not release a statement about it.

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Robinhood is in a Fiercely Competitive Market

However, competition is tough in the online brokerage universe. Robinhood competes with Wall Street companies such as Fidelity, Charles Schwab, which owns TD Ameritrade, and E-Trade parent Morgan Stanley. 

It also must contend with Coinbase, SoFi, eToro, and WeBull. And with Coinbase gaining a recent upper hand with its collaboration with BlackRock, it has the upper hand from Robinhood. 

Tallents does not believe a huge Wall Street brokerage would want to invest in Robinhood due to the risk. He stressed that Robinhood users are younger and have less money to put in, so a potential purchaser “would need to play a long game and hope they get more affluent.” 

But while the short-term concerns are increasing, Robinhood can look to the bright side with its solid enough financial cushion to keep the operations going for the foreseeable future. 

Robinhood concluded the second quarter with $6 billion on its balance sheet, a decrease from the $6.2 billion in March. Thus, Tallents think the situation isn’t hopeless yet. 

However, the company will need to ease the investors’ concerns about its growth rate.

Read also: Robinhood Launches a New Stock Loaning Program