Robinhood Is Making Changes. Keep an Eye on Its Stock.

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Tiffany Hagler-Gierd/Businesshala

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Robinhood Markets stock is down more than 50% from its initial public offering price in July. The company is taking steps to reverse that decline – but unlike in the past, it is no longer reliant on Mem stock or Dogecoin. Instead, its latest change could make it a little more awkward and perhaps more profitable.

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When Robinhood (ticker: HOOD) went public, it traded at a wildly inflated valuation based on earnings that are still far from flourishing. that’s why baron’s Warns investors to stay away from initial public offerings (“The Robinhood IPO Coming Soon. Stay Clear,” July 23, 2021).

Robinhood’s stock is now trading at nearly seven times expected 2021 sales, down from about 20 at the start.

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The company still doesn’t have a clear path to profitability, but its latest moves point in one direction. It has 22 million customers, a remarkable feat for such a young firm.

The company announced Thursday that it will appoint Steve Quirk, former executive vice president of business and education at TD Ameritrade, to a new position, its chief brokerage officer. He will oversee the company’s broker-dealers, Robinhood Financial and Robinhood Securities. In its announcement, Robinhood emphasized Quirk’s over 35 years of brokerage experience.

Robinhood’s top management team has been more tech-heavy, with many top executives coming from places like Alphabet (GOOGL) and (AMZN). This may have helped Robinhood impress users with its easy-to-use interface and technical features. But the company could not persuade them to invest more money with the brokerage firm.

The biggest sign that Robinhood is looking to broaden its model is a new program that will move new investors into a more diversified portfolio if they ask for help.

For years, Robinhood has introduced new customers to its platform with visual cues like free stock and scratch-off tickets. It has categorically denied that by doing so, its platform has become like a lottery or gambling app.

Its latest innovation, announced Tuesday, will instead direct new investors to a more plain-vanilla strategy: buying a basket of exchange-traded funds.

“The recommended ETF will give clients exposure to a diverse set of domestic and international equities as well as the US bond market,” the company said in a blog post.

If the ETF package attracts investors, it could be an important step toward reinventing Robinhood’s business model. More than three-quarters of Robinhood’s revenue comes from transactions, a percentage that the company must reduce to flatten its boom-and-bust financial trajectory and produce steady income.

More diversified investments, and fewer lottery tickets, can be the first step to getting there.

Write Avi Salzman [email protected] Feather


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