Robinhood, founded in 2013 by Stanford University graduates Vladimir Tenev (from Bulgaria) and Baiju Bhatt, offers a service for trading shares and cryptocurrency without transaction fees. The start-up earns from a paid Robinhood Gold subscription, allowing investors to trade with a bigger balance sheet than they have, as well as selling their customers "bids, redirecting them to those financial intermediaries willing to pay for them.
Robinhood Gold allows you to borrow money from the company to invest. To do this, the client must buy a subscription to the service for $5 per month and put at least $2 thousand on the account. After paying for the subscription, the client receives $1,000 in debt. If he takes more, he will have to pay 5% per annum with a margin above $1,000.
Performance indicators
According to the company, it has increased the number of its savings accounts to which bank accounts are linked, from 12.5 million in 2020 to 18 million in March 2021.
Assets under management rose to about 80 billion, from dollars$19.2 billion in March 2020.
History
2023:7% staff cut
At the end of June 2023, trading platform Robinhood Markets announced the dismissal of 150 full-time employees or about 7% of the total headcount.
Robinhood Markets Chief Financial Officer Jason Warnick wrote in an internal letter to employees that the cuts are being made to adapt to volumes and better align the team's structure, the Wall Street Journal reported.
In June 2023, this is the third round of layoffs in a year and a half, starting from the beginning of 2022. These two reductions led to the loss of more than 1,000 employees. The layoffs came just five days after Robinhood Markets in mid-June 2023 acquired credit card company X1, in a deal worth $95 million.
 | We provide operational excellence in how we work together on an ongoing basis. In some cases, this may mean that teams make changes depending on volume, load, organization design, etc., - said a top manager of Robinhood Markets. |  |
In 2022, Robinhood Markets cut its total number of employees by 9% in April 2022 and let go of 23% of its remaining staff in August 2022 as declining trading activity and low share and cryptocurrency prices cut profits.
At its peak, in the second quarter of 2021, Robinhood Markets boasted 21.3 million active users and revenue of more than $565 million. The results of the first quarter of 2023 showed a decrease in the number of monthly active users in Robinhood Markets by 44% and a decrease in revenues by 30% compared to 2022.
As of June 27, 2023, Robinhood Markets shares are trading at $9.63, up 18% over the year, despite falling more than 82% from their all-time high of August 2021.[1]
2021
Buying the Cove Markets trading platform
In mid-December, Robinhood, with investments from Yuri Milner, bought Cove Markets. The financial component of the transaction of the company did not disclose. Read more here.
Data theft 7 million users
On November 8, 2021, the online broker Robinhood with the investment of Yuri Milner announced that the personal data of more than 7 million customers were available as a result of data hacking. The attacker was able to obtain a list of email addresses of approximately 5 million users and full names for a separate group of 2 million. Additional personal information, including names, dates of birth and postcodes, was disclosed to a smaller group of about 310 people, and more extensive account data was disclosed to about 10 customers.
The company did not provide further information on what the extensive data was, but a Robinhood spokesperson said that even for those 10 customers, neither Social Security numbers, bank account numbers or debit card numbers were disclosed. A spokesman for the online broker declined to say whether any of those customers were specifically targeted for the breach, but the company said Robinhood was in the process of notifying all those users who were affected. Customers who want information about whether their accounts have been affected should contact the help center on the company's website.
| | After careful review, we have notified the entire Robinhood community of this incident. We have set up a single team to investigate the cyber attack. Individual specialists are hired, as independent experts, to conduct awareness-raising work with potential victims, "said Robinhood Security Director Caleb Sima (Caleb Sima). | |
After managing to contain the attack, Robinhood said an unauthorized third party sought a ransomware payment and the company notified law enforcement but did not say whether any payments had been made. Robinhood has brought in an external security firm Mandiant to investigate the incident.[2]
Purchase of the developer of the platform for communication of minority shareholders with the leadership of Say Technologies
In early August 2021, the American investment and trading service Robinhood announced the acquisition of the developer of the platform for communicating minority shareholders with the leadership of Say Technologies for $140 million. Read more here.
Payment of $70 million for misleading customers
At the end of June 2021, it became known that the online broker Robinhood, in which the DST Global fund of Russian billionaire Yuri Milner had previously invested, would pay $70 million for misleading clients. The company agreed to pay the fine to settle the regulators' claims.
According to The Wall Street Journal, citing the self-regulatory organization Financial Industry Regulatory Authority (FINRA), formerly known as the National Association of Securities Dealers, Robinhood will pay a $57 million fine and $12.6 million compensation to affected customers. In total, by the end of June 2021, the company has about 31 million customers, 18 million of whom use funded accounts.
The claims against Robinhood were related to technology that automated the opening of new accounts and updated customers' information about their balance sheets and borrowings. The company opened 90,000 new accounts from 2016 to 2018, despite warnings of possible identity theft and other fraud.
Among other violations committed by the online broker, technical failures on the platform in March 2020 are also mentioned. Then the clients of the application could not trade in it for several days.
The regulator also pointed out that the online broker misled other traders who believed that they could not use borrowed money or margins if they turned off such a function. As it turned out, for certain types of option transactions, the option was still available, which imperceptibly drove Robinhood customers into debt.
The $57 million fine is the largest FINRA has ever imposed. The previous record dates back to 2002, when the self-regulatory National Association of Securities Dealers fined Credit Suisse $50 million on charges of overcharging stock trading fees during an IPO.[3]
IPO plan
On July 1, 2021, Robinhood filed for an IPO. The company said it plans to trade under the symbol "HOOD" on the Nasdaq.
Robinhood plans to allocate between 20% and 35% of its IPO-listed shares to its retail customers.
Later in July 2021, it became known that Robinhood plans to raise more than $2 billion during the IPO.
The company will list 55 million dollars shares at prices ranging from $38 to $42 apiece, according to a filing with the SEC.
In March, Bloomberg Intelligence estimated Robinhood's value in the range of $13 to $40 billion. With plans to attract more than $2.2 billion. Robinhood's IPO will be the fifth largest on the US stock exchange in 2021. This year has already set a record in history: 648 companies raised a total of about $218 billion.
Launch your organization to create Open Source mobile software development tools
In early March 2021, the Linux Foundation launched the Mobile Native Foundation, designed to encourage the creation of open source tools for mobile application development. Read more here.
Emergency attraction of $1 billion of investments for settlement with customers
At the end of January 2021, fintechstartup Robinhood with investments Yuri Milner urgently raised $1 billion to pay off customers who began to actively invest their capital. The extremely large volume of trading almost undermined the activities of Robinhood, which must both pay customers and place additional cash in the clearing house to insulate its trading partners from potential losses.
As a result, Robinhood was forced to ban customers from buying a number of shares, such as the company's GameStop securities. To continue working, the fintech startup attracted loans from six banks in the amount of $500-600 million. In addition, Robinhood has contacted several of its investors, including venture capital firms Sequoia Capital and Ribbit Capital, to secure emergency funding.
| | Investors are confident in our operations, and their trust will help us continue to serve customers, "said Robinhood spokesman Josh Drobnyk. Venture capital firms Sequoia and Ribbit declined to comment. | |
Investors who provide Robinhood with new funding will receive an additional equity stake in the company at discounted value tied to Robinhood's share price when the company goes public. Robinhood plans an initial public offering in 2021.
In January, many online investors used Robinhood to raise the prices of GameStop, AMC Entertainment and other stocks through bets. This changed after the company ceased trading in the most popular shares. Robinhood has been sued by some investors for losses they suffered after the move, and a number of lawmakers have urged regulators to keep a closer eye on the company.[4]
2020
SEC fines Robinhood $65 million for publishing inaccurate information
Robinhood Financial LLC, a mobile stock trading application operator, will pay $65 million to settle claims by the US Securities and Exchange Commission (SEC), which considered that the company misled customers without sufficiently disclosing that it receives money from trading companies to which it redirects its customers' applications.
The regulator believes that Robinhood deceived customers by hiding information about exactly how the stock trading app allows the company to make money. Robinhood also failed to meet its commitment to seek the best possible conditions for fulfilling client filings, the SEC said in a statement. The fintech company with Yuri Milner's investments has agreed to pay the fine.
The SEC notes that between 2015 and the end of 2018, Robinhood made statements misleading the company's customers about its largest source of revenue - payments received from trading platforms, which are also called "application flow fees." One of Robinhood's arguments for attracting customers was the lack of transaction fees, however, due to high rates of "payment for the flow of applications" of the company, its clients' applications were executed on terms worse than those offered by other brokers, the SEC claims. In particular, the company did not report its largest source of income, that is, payments from trading firms that were provided in exchange for orders from Robinhood customers, the regulator said.
Robinhood and many other online brokers rely on so-called "order flow payments" to make a profit, allowing the app to offer users "no-fee trading." For Robinhood, this has become a major source of revenue. Market makers such as Citadel Securities or Virtual pay electronic brokers such as Robinhood for the right to transact customers. The broker is then paid a small commission on the shares placed, which could amount to millions if the broker's customers are actively trading on the exchange. In 2020, Robinhood's customer base grew unusually due to unprecedented market volatility amid the COVID-19 pandemic.
The complaint about predatory marketing of the trading app was filed by Massachusetts regulators, who also noted Robinhood's "aggressive tactics to attract inexperienced investors, use gamification strategies to manipulate customers, and failure to prevent frequent disruptions to the trading platform."[5]
At the same time, Robinhood argued on its website that the quality of execution of applications on its platform is not inferior to competitors or even better than competitors, Interfax notes.
The SEC calculated that the losses of the company's customers as a result of unprofitable transactions totaled $34.1 million, taking into account savings on commissions.
"Robinhood provided customers with incorrect information regarding the actual costs they incurred when choosing to work with this company. Brokerage firms cannot mislead customers about the quality of order execution, "said Stephanie Avakian, director of the SEC's compliance department.
Robinhood did not admit the charges as part of an agreement with the SEC, but agreed to a review of its practices and procedures regarding customer engagement, as well as payment for the flow of applications and execution of client applications, by an independent consultant.
Theft of user funds and their transfer to the digital bank Revolut
In mid-October 2020, 2 thousand client records were hacked from the fintech company Robinhood, and user funds were transferred to accounts with the digital bank Revolut. Customers blame the company for reacting too slowly to the situation. This is partly due to the fact that the app does not have an emergency phone and the ability to quickly contact on such issues. Robinhood developers assure that the problem is not in the service, but in the vulnerability of users' e-mail.
According to Robinhood at the time of the hack, cyberattacks affected only "some" customers whose emails were compromised. However, a person familiar with the company's internal processes and who wished to remain anonymous told Bloomberg that at least 2,000 customers were affected by the attack. At the same time, some victims did not find any evidence of mail hacking. Others reported already using two-factor authentication, which Robinhood advised victims to include after the incident.
The cyber attacks also sparked a flood of complaints on social media, where investors recounted futile attempts to call a brokerage that failed to provide a support phone number. Now Robinhood, which serves more than 13 million accounts, is considering creating a hotline and a range of other security tools. Robinhood has sent push notifications to users offering to enable two-factor authentication and also plans to send additional security recommendations to customers.
| | We always respond to customers who report fraudulent or suspicious activity and investigate as quickly as possible, the company said in a statement. - The security of Robinhood customer accounts is our top priority and we take this matter very seriously.[6] | |
Raising $460 million in investments and an estimate of $12 billion
At the end of September 2020, the fintech company Robinhood, with Milner's investments, raised another $460 million and was valued at almost $12 billion. This is the latest round of funding ahead of the company's initial public offering, expected in late 2020 or early 2021.
The last fee of $460 million extended the Series G round by $200 million, which was announced in August. As a result, the total amount of the round will be $660 million. Additional funding in the round came from investors such as Andreessen Horowitz, Sequoia Capital, DST Global, Ribbit Capital, 9Yards Capital and D1 Capital Partners. It is noteworthy that initially D1 Capital Partners was the leader of the series G round. It is assumed that the company's valuation after additional funding will be $11.7 billion.
Robinhood confirmed the receipt of new funds in the amount of $460 million, followed by the closure of the G series. The funding received will go to provide basic services to the company and customer service, as well as create new proposals, such as cash management and regular investments.
According to Crunchbase, Robinhood's total raised funds are now $2.2 billion. dollars A significant portion of this venture capital was generated in 2020. With the new funding, in both Series G and its renewal, Robinhood raised $1.26 billion in three months.
In 2020, the pandemic became the main driver for Robinhood's growth, COVID-19 as people forced to work from home began to use the Robinhood stock trading app more actively. The increase in the number of users is reflected in the high valuation of the company before the expected public offering of shares.[7]
US investigation launched due to high number of user complaints
At the end of August 2020, regulators in the United States launched an investigation against Robinhood after massive complaints about the stock trading service.
In the first six months of 2020, U.S. consumer protection agencies received more than 400 complaints about the stock trading app without fees from Robinhood deals. This is about four times more than the number of complaints about competing services.
Raising $200 million in investments and valuing the company at $11.2 billion
On August 17, 2020, Robinhood Market raised $200 million as part of a new Series G investment round, following which a fintech startup with investments from former Mail.ru Group co-owner Yuri Milner was valued at $11.2 billion.
The main investor was D1 Capital Partners. Who else invested in Robinhood is not specified. According to calculations by PitchBook and Reuters, by August 17, 2020, the startup had raised a total of $1.71 billion, including $800 million since the beginning of the year.
According to the company's blog, Robinhood intends to spend the funds received on "meeting the needs of customers," including attracting hundreds of new representatives of financial services in offices in Texas and Arizona (USA).
In addition, Robinhood is going to expand teams in all its offices to create new tools for users to work independently, improve information and educational resources, and accelerate trading operations.
The new round of funding is seen by experts as a harbinger of an initial public offering (IPO), which could be successful due to the fact that the COVID-19 coronavirus pandemic has pushed many people to stay at home more, and this, in turn, spurred the growth of stock trading in the daytime.
The publication SiliconANGLE calls Robinhood the first and most popular zero-fee stock trading app, which is especially interesting for millennials (born around 1981-1996). By August 19, 2020, the service has more than 10 million registered users, the average age of which is 31 years.
| | In today's volatile market, new traders are looking for ways to make money on fluctuations in stock prices caused by COVID-19, which confirms the correctness of Robinhood's business model, says PitchBook analyst Robert Le.[8] | |
Refusal to enter the international market after the suicide of the user
At the end of July 2020, fintech Robinhood, with the investment of Yuri Milner, changed his mind about entering the international market after the user's suicide. Alexander E. Kearns, a 20-year-old student at the University of Nebraska, killed himself when he saw a huge debt on his account in the application.
According to Forbes, Kearns decided to invest his funds in stocks during the pandemic by downloading the application of the fintech company Robinhood, which offers trading in shares without commission. During the first quarter of 2020, the Robinhood platform had nearly 3 million new accounts. Since the stock market was subject to sharp fluctuations during COVID-19, Kearns began to experiment by trading in various stocks.
On a tragic evening, Kearns scrolled through a Robinhood account and saw the cash balance was negative, at $730,165. During the investigation, it became clear that the negative amount in his application did not show debt, but a temporary balance sheet reflecting the state of the account while shares were credited to it at the basis of options. However, the young man did not know this and on June 12, 2020 he committed suicide, leaving his parents a note:
| | How does a 20-year-old student with no income have to pay nearly a million dollars? | |
Upon learning of Kearns' death, Robinhood management promised a major redesign to its platform. The company intends to add more training materials related to options trading and hire a specialist to educate users. Robinhood is also discussing introducing additional criteria for customers who want to trade third-tier options.
Robinhood employees expressed condolences to the family of the deceased and donated $250,000 to the American Foundation for the Prevention of Suicide.[9]
Raising $320 million in investments and valuing the company at $8.6 billion
In mid-July 2020, the fintech company Robinhood, with investments from the Yuri Milner Foundation, raised another $320 million. Taking into account the fact that in the same round of financing the company previously raised $280 million, now its value is estimated at $8.6 billion.
The main investor in the current F round was Sequoia Capital. TSG Consumer Partners and IVP also offered their funds. According to Robinhood founder Vladimir Tenev, his service has experienced a wave of popularity amid market changes due to the coronavirus. The fintech start-up became very popular with millennials, because, being locked up in their own homes, they began to invest in the shares of companies.
Robinhood's new capital was no less unexpected than the first charges. The company noted a surge in demand associated with huge volatility in the stock market in 2020. Many investment and savings-focused fintech companies rejoice as consumers seek to accumulate and use their cash. In February 2020, Robinhood was named among the top 10 fintech companies in the United States by Forbes.
Despite the previous difficulties, Robinhood representatives believe that the company has a good financial year. One of the incidents was widely publicized - in June, an aspiring 20-year-old trader killed himself due to a huge debt. In a suicide note, he indicated that the app traded without his permission using credit money. In fact, there was no debt - the student misunderstood the information in the application interface. After this incident, Robinhood promised to tighten the work of some components of its platform, optimize the display of information in the application and engage in the formation of its new customers.[10]
2019: Raising $323M DST Global among investors
On July 22, 2019, Robinhood announced a Series E funding round, as a result of which the company raised $323 million and was valued at $7.6 billion, which is 35% higher than the estimate by May 2018.
The investment deal was led by Russian billionaire Yuri Milner's venture capital firm DST Global. Robinhood's investors also included Ribbit Capital, NEA, Sequoia and Thrive Capital. The volume of investments of each fund is not disclosed.
For DST Global, this is not the first investment in Robinhood: the fund participated in funding in 2017 and 2018.
Robinhood said the funds raised will go towards "fulfilling our mission to democratize finance for all." Founders Vladimir Tenev and Baiju Bhatt have repeatedly announced plans to bring the company to the stock market in the long term.
By the end of 2018, Robinhood had more than 6 million brokerage accounts, which is 2 million more than in the summer of that year.[11]
Notes
- ↑ Robinhood to axe 7% of full-time staff in latest round of layoffs: Report
- ↑ Robinhood says a hacker who tried to extort the company got access to data for 7 million customers
- ↑ Robinhood Agrees to Pay $70 Million to Settle Regulatory Investigation
- ↑ Robinhood, in Need of Cash, Raises $1 Billion From Its Investors
- ↑ SEC charges Robinhood with misleading customers about how it makes money
- ↑ Robinhood Internal Probe Finds Hackers Hit Almost 2,000 Accounts
- ↑ Feeling merry, stock-trading app maker Robinhood raises an additional $460M
- ↑ Robinhood raises $200M on $11.2B valuation amid new IPO rumors
- ↑ 20-Year-Old Robinhood Customer Dies By Suicide After Seeing A $730,000 Negative Balance
- ↑ Robinhood raises $320M more, bringing its latest round to $600M at an $8.6B valuation
- ↑ Robinhood Raises $323M to Democratize Finance For All
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