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Street Confident in Robinhood Becoming Profitable Next Year After Decision to Cut Workforce -Breaking


Street Confident in Robinhood, (HOOD), Becoming Profitable Next year After a Decision to Reduce Workforce

Robinhood (NASDAQ) revealed its intention to cut 9% off its full-time workers and reduce duplicate jobs it created during its rapid growth period at the beginning of 2020. This sent its shares plummeting 4% on Wednesday pre-open.

Robinhood grew substantially on the heels of the coronavirus outbreak two years ago as more individual investors joined the platform to invest in crypto assets and “meme stocks”. During the period, the company’s number of employees increased to 3,800 from 700, according to Robinhood CEO Vlad Tenev.

“This rapid head count growth has led to some duplicate roles and job functions, and more layers and complexity than are optimal,” said Tenev. “While the decision to undertake this action wasn’t easy, it is a deliberate step to ensure we are able to continue delivering on our strategic goals and furthering our mission to democratize finance.”

Robinhood plans to release its fourth quarter earnings report Thursday. Tenev stated in a blog that Robinhood has $6 billion of cash in its balance sheet.

Robinhood stated last month it would increase trading hours to seven o’clock in the morning. ET to 8. ET – in a bid for a rebound after a slowdown in economic growth.

Morgan Stanley analyst Michael Cyprys noted 3 implications of yesterday’s decisions:

  1. The continuation of the shift in mgmt’s tone and emphasis towards profitable customer monetization;
  2. It is recognized that the revenue environment in 2022 will be difficult to recover from;
  3. Investors need to be aware that there is no guarantee of profitability.

“We expect HOOD inflects to profitability on an adjusted EBITDA basis in 2023 (in-line with consensus) and today’s announcement gives us more confidence in those estimates, with potential for that timeline to be accelerated in the context of a rising rate environment that should support net interest revenues,” the analyst said in a client note.

Will Nance of Goldman Sachs estimates that HOOD will potentially reduce costs by between $50-60 million and could help improve margins by 2.5-3 percent. However, the analyst says that investors are likely to see this announcement ahead of tomorrow’s print as “an ominous sign for top-line dynamics.”

“We believe the announcement aligns with the company’s objectives of rationalizing the company’s expense base and digesting prior years’ growth. This is also a reflection of current realities, such as lower ARPUs and weaker retail engagement. We see it as a slight positive as the brokerage business has fixed costs. This shows mgmt’s determination to maximize profitability and achieve its stated goals of becoming profitable in 2023. On the other hand, we believe the announcement will be met with investor concern regarding trends in the business and mgmt’s outlook for a rebound,” Nance said in a client note.

By Senad Karaahmetovic