Friday marked the first anniversary of the ‘GameStop fiasco’ and its ripple effect victim ‘Robinhood’. By all means, it was a roller coaster for both the companies, last year around this time. This act ‘indirectly’ depicted taking from the poor and giving to the rich, which is ironically against the company’s name.
The Robinhood frenzy explained
In a nutshell, Robinhood is a financial services company; it is a platform for trading in stocks with zero commission charges. So, during the GameStop fiasco, Robinhood played a vital role in the entire scenario: it stepped in and restricted the investors’ trading in a few limited stocks such as GameStop and AMC, among a few others. As more people were buying GameStop stocks and fewer who were interested in selling, the demand for Gamestop stocks and outstanding shares became ridiculously unproportionate, which also caused a problem for Robinhood as it was running out of funds for trading; hence this led the Robinhood company to place restrictions on the stocks such as GameStop, where the investors were allowed to sell, but strict limitations were placed on buying.
Robinhood as of today
Robinhood’s trading restrictions in 2021 fueled anger among the retail investors, and the investors became disinterested in trading, which made the trading activities on the platform slightly sluggish.
Robinhood earns its revenues from three sources:
- Interests earned on customers’ cash balances.
- Selling order information to high-frequency traders.
- Through lending.
The earnings above highly depend on the frequency of trading on the Robinhood platform. But, the dismay caused in the investors and the resultant sluggish trading stagnated the revenues to a high margin, causing the Robinhood stocks to fall.
Robinhood has since pledged to win back the trust of outraged customers. But today’s stock market shows a different picture; Robinhood has stooped down even low as the disinterest in trading stocks continues among investors.
According to the quarterly data released late Thursday, monthly active users declined 8% from the previous quarter to 17.3 million. Stock-related deals brought in $52 million for Robinhood, up 4% from the third quarter but down 35% from a year ago. Cryptocurrency-based revenue fell 6% sequentially to $48 million, but it’s still up 304 percent year over year as additional coins are introduced to the marketplace.
Early Friday, Robinhood stock plunged as much as 15.5 percent to $9.81 before reversing course and falling only 6%. The price dropped to its lowest level since its shares went public on July 29, 2021.
Management expects less than $340 million in the first quarter, down from $363 million in the fourth quarter and 35 percent lower than a year earlier. And according to the business, this assessment “assumes some incremental increase in trade volumes beyond what we have witnessed thus far.”