The momentum of growth stocks has slowed sharply in recent months, and in recent days the trend has intensified. As interest rates rise the current value of the expected cash flow capitalization sometime in distant days (if any) becomes less attractive and investors run away from these stocks like wildfire.
On days like these, life-sustaining growth companies need to see exactly how to bring down a little more from the revenue line that grows to the red profit line, especially with the revenue line no longer growing as nicely as it once did. One way to do this is to cut expenses.
Robin Hood
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Is at exactly this point. The company that developed a no-commission trading app and swept millions of users ended its impressive growth period and decided it was time to cut spending, or rather, payroll expenses.
The company’s CEO Vlad Teneb announced that the company would cut 9% of the full-time workforce to improve efficiency. The decision, he said, was “necessary” but was not easily taken until after deep thought. On Wall Street.
When it comes to manpower, there’s probably something to cut back on Robin Hood. The number of employees has tripled from 2020 to mid-2021 and has reached 3,800. According to Tanev, the rapid expansion is reflected in the duplication of roles and the complication of the company’s structure.
The company’s blog where the decision was published also stated that the company has cash worth $ 6 billion. At the end of 2021, the company had $ 6.25 billion, so this is a current cash burning rate of about $ 1 billion a year. Given the decline in growth and the declines in the markets, this cut seems necessary.
Teneb noted that the move comes in response to changes in the way investors are currently operating in the market in light of geopolitical tensions, economic uncertainty and rising inflation. What he meant to say is that the growth in the company’s revenue has stopped, and no longer justifies such inflated manpower. He added that the company gives priority to automation and operational efficiency, and that it is a deliberate step to keep the company on track that will include introducing new products as well as continuing to expand in the international market.
Robin Hood’s upcoming report is at high risk of disappointment. It will report first-quarter results on Thursday after trading, with this quarter facing the first quarter of 2021 which was the record for a stagnant stock trend that boosted the company’s revenue. The market may be forgiving and the stock price already reflects The understanding that this was a one-time period and that one should not learn from that quarter about the state of the company in the long run.
Analysts expect revenue of $ 355 million and a net loss of 38 cents a share, according to research site FactSet, data reflecting a 32% drop in revenue from $ 522 million the company reported last year.
Since the issuance of Robin Hood has been providing its investors with mostly disappointments. After an initial jump that brought the stock price to $ 70.39 the stock is mostly down, and now it is trading for only $ 10 and with a market value of $ 8.36 billion. This is still a revenue multiplier of about 4, and the company is still losing a lot of money every month, so it may not be the end of the road in terms of declines.
Robin Hood’s business model is unclear. If users do not pay commissions on trading then how does the trading company intend to make money? So there are some ways in which Robin Hood generates revenue (which as mentioned has reached half a billion dollars). First it is not accurate that there are no fees, they are simply not recorded as such. When a user sends a buy or sell order Robin Hood executes the order using a market maker with a difference between the price at which the transaction is performed and how it is recorded in the user’s account. She sweeps this gap for herself. In addition, Robin Hood offers premium services for a monthly fee of $ 5. Leverage trading creates the payment of interest on leverage (the company allegedly lends the money intended for leverage). For a leverage of over $ 1,000, Robin Capital charges $ 2.5. In addition, there are additional fees such as for money transfers, etc.
If so, the company knows how to generate cash at a certain level, but the business model has not yet been proven to know how to generate sustainable profits over time, and certainly not at a level that justifies the current value. Trying to cut manpower and expenses can be a first step on the way to turning the company into a real business, but the burden of proof is still on the company.
In the company’s reports for the fourth quarter of 2021, the company missed the bottom and top line. Revenue was $ 363 million and the net loss reached $ 0.49 per share. The number of users grew by 81% but revenue from user was cut by 40%.
Company The Israeli Ituro Operates in the same segment of Robin Hood. The Israeli company tried to issue the company through the issue of Spock, an intention that was eventually canceled. But the intent still exists and could be dangerous for investors. Even if Ituro cuts in value in honor of the IPO it is important to remember that the model by which these companies operate still fails to present sustainable profits, that the market is very sensitive to disappointments and losses, and that revenue growth does not translate into less attractive earnings in rising interest rates. Such an IPO could turn into a bloodbath for investors to be diverted by the glittering image presented by the company.