The past few months have looked like an endless ordeal for Robinhood (HOOD) – Get Robinhood Markets, Inc. Class A Report shareholders.
Shares of the brokerage app that wanted to democratize finance are in a free fall.
Robinhood stock made its IPO at $38 last July. On Dec. 31, the shares were trading at $17.75. The descent into hell has continued since the beginning of 2022. The shares were trading on May 6 at $10.12. In less than a year, Robinhood stock has lost 73.4% of its value. The company’s market capitalization is now at $8.45 billion down from $32 billion. The platform has never been so fragile.
Where Are Gen Z?
The Gen Z, its target, whom Robinhood wanted to support in their first steps in finance, seemed to be abandoning the firm little by little. The company recently reported a sharp drop in active users.
Monthly active users decreased by 10% to 15.9 million during the first quarter, the company said. The firm recorded 17.7 million MAU during the first three months of 2021, “during which we experienced high trading volumes and account sign-ups as well as high market volatility, particularly in certain sectors.”
The decline is also from quarter to quarter. In effect, on a sequential basis, MAU decreased by 8% compared with 17.3 million for December 2021.
“The sequential decline was primarily attributable to users with lower balances, who are engaging less in the current market environment,” Robinhood said.
Yet it is not for lack of trying to retain these customers. Robinhood has launched various initiatives such as adding many cryptocurrencies as assets to trade on the platform. Aside from these new assets, Robinhood has also just made a move to woo retail investors behind the crypto price appears in 2021. The brokerage is going to roll out a crypto wallet to over 2 million customers. This wallet allows users to trade crypto outside of Robinhood.
In addition to diversification, Robinhood also hopes to revive itself through external growth. The company recently acquired the British crypto firm Ziglu, which enables UK-based customers to buy and sell 11 cryptocurrencies, earn yield via its Boost products, pay using debit cards, and move and spend money, even abroad, without fees, according to the firm
Robinhood Starts a Stock Lending Program
The fintech company, which is also reducing its costs by laying off 10% of its workforce, has now taken a new step. The company has just launched a program that allows its users to lend their shares to market participants in exchange for a fee.
All shares traded on the platform can be part of the program. However, interested Robinhood users must opt in and meet certain qualifications to participate. Users must have $5,000 in total account value, at least $25,000 in reported income or some trading experience.
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“By enabling stock lending, a customer gives Robinhood permission to lend out any fully paid stocks in their portfolio,” the trading app said in a blog post. “We do the work of finding interested borrowers, and customers get paid when there’s a match.”
“Once shares are loaned out, customers can easily track earnings, see their positions, and enable or disable Stock Lending at any time, all through our intuitive in-app dashboard.”
Market participants will borrow stocks to facilitate short sales, cover deficits, failed deliveries or collateral. This practice mostly impacts stocks with low market availability and stocks that are in high demand.
There are consequences, in particular the tax impact, for the owners of the loaned shares.
“You may lose the right to vote with respect to loaned securities, and you will receive cash payments in lieu of dividend on such securities,” Robinhood warned. “The cash payments may be taxed differently than dividends. You should consult with a tax professional before enrolling in stock lending.”
The program will be available to all customers by the end of May.
News of this new initiative was met with jokes on social media.
“Lol.. let us short ur stock you actually don’t have,” one Twitter user commented.
“I got rid of Robinhood a while back. But I really with I could use $HOOD to short $HOOD,” another said.
“Oof robinhood was good. Then they shot themselves in the foot. Now they trying to stop the bleed,” said another user.
These comments suggest that the trading app has a mountain to climb to regain momentum.