(Bloomberg) — A relaxed vibe envelops Robinhood Markets Inc.’s California headquarters, where employees stroll in pairs around a lush courtyard of cacti, towering conifers and a squat grapefruit tree.
The Zen-like mood extends to the C-suite of the app-based brokerage, where co-founder and Chief Executive Officer Vlad Tenev, wearing white sneakers and a charcoal button-down, sprawls out on a blue sofa during an interview.
It’s not exactly the kind of atmosphere one might expect for a company that has lost more than $4 billion in the past five quarters and seen its stock plunge 77% since last July’s initial public offering. The challenges have only mounted in recent months, as stagnating user growth and a broad decline in trading coincided with a round of job cuts, not to mention a potential regulatory overhaul that could threaten a key source of revenue.
If Tenev, 35, is rattled, he doesn’t show it.
“You can’t run a business, or really live your life, with your emotions being driven by how the stock market is doing,” he said in an interview ahead of the first anniversary of the IPO.
Still, investors will be looking for signs that Tenev is making progress on a turnaround when Robinhood reports second-quarter results Wednesday. He plans to do that by catering to the firm’s most active customers, a pivot from the company’s previous strategy of amassing as many users as possible, regardless of how often they trade or how little money they hold in their accounts.
Having a large number of small-dollar investors hasn’t exactly been a boon for Robinhood’s bottom line. The median account size was about $240 in February 2021, Tenev told the House Financial Services Committee that month. His testimony addressed the meme-stock frenzy weeks earlier, when shares of GameStop Corp. and others skyrocketed, prompting Robinhood to restrict some stock purchases. A recent investigation by committee staff revealed how seriously the episode threatened Robinhood’s business.
Read more: A Year After GameStop Fiasco, Robinhood Grapples With Fresh Woes
“This year, we’ve shifted a little bit to focusing on the people we already had,” Tenev said of the roughly 23 million customers who’ve deposited funds in a Robinhood account. But the most active users are those experimenting with other offerings, such as its cash card and recurring investments, he said.
Monthly active users hit 24 million about two months before the IPO and have dropped steadily since, to 14.6 million at the end of May. Crypto trading volume was hit especially hard, plummeting 94% in that same span as Bitcoin prices tumbled and the Terra stablecoin ecosystem collapsed.
Robinhood, which Tenev founded in 2013 along with Stanford University roommate Baiju Bhatt, says “democratizing finance” is its mission. But prioritizing active users may come at a cost: One former manager, who asked not to be identified, said senior executives devoted more attention to super-users than to studying how they might improve customers’ financial well-being, missing an opportunity to help them build lasting wealth with the platform.
Tenev countered that critique, saying that addressing any frustrations that the most active users encounter will help make the platform better for everyone.
“Improving the quality of service for them, that trickles down to the less active customers,” he said.
Excessive trading on Robinhood’s platform could hurt young investors in the long run, said Catherine Valega, a wealth consultant at Green Bee Advisory, adding that the recent market swoon could be a moment to reassess.
“Hopefully with the bubble burst, people will take a breath and we’ll get back to reality again,” she said.
Job Cuts
Reining in expenses is another pillar of Tenev’s turnaround plan. Robinhood cut 9% of its workforce in April — an abrupt about-face after it bought a recruiting firm and spent several months hiring and opening offices across the US, including in New York, Seattle and Charlotte, North Carolina.
“We’re always looking at ways to become more efficient — headcount, obviously, is one of the levers,” Tenev said. The firm is looking to cut costs in other ways, including getting all leaders “to do more with less.”
Software and web hosting are also potential targets for expense reductions, notable given Robinhood’s rocky track record of service disruptions. In March 2020, as the pandemic fueled a boom in online trading and expanded the firm’s user base, its platform went dark for an entire trading day. Lawsuits followed the outage, which left customers angry about missing a massive rally.
Read more: Robinhood Trading Site Seizes Up, Customers Miss Stock Rally
The sharp decline in Robinhood shares — they closed Wednesday at $8.90 apiece, a year after debuting at $38 — has fueled speculation that it could be primed for a takeover.
Billionaire Sam Bankman-Fried, the CEO of crypto exchange FTX, acquired a 7.6% stake in Robinhood in May, about a year after an investor in both firms introduced him to Tenev. FTX has held internal discussions about the possibility of a deal, Bloomberg reported in June. Robinhood hadn’t received a formal takeover approach at the time.
Tenev, meanwhile, said deal talks aren’t a priority and that Robinhood is focused on building new products.
“We can do that really, really well as a stand-alone, public, independent company,” he said.
Regulatory changes still loom. The Securities and Exchange Commission is weighing modifications to how brokers handle retail trades, threatening one of Robinhood’s main revenue streams. The agency also expressed concern about “gamification” practices that encourage more trading.
See also: Bankman-Fried’s FTX Said to Seek Path for Robinhood Deal
The pressure for Robinhood to turn things around isn’t coming just from early backers. At the IPO, the firm made an unusually large percentage of shares available to everyday investors. One of them, accountant Mark Swearingen, said he invested about $2,000 in Robinhood shares in the company’s first days on the market. He sold his remaining position earlier this month.
“Even with good news, it seems like they’re always dropping,” said Swearingen, 34, of Pennsylvania.
Tenev still seemed relaxed as he discussed the way forward for Robinhood. Sitting outside a room called “Warm Milk” — conference rooms at the firm’s Menlo Park headquarters are named by popular opinion — he rattled off some of the problems that had previously dogged the company and how it worked to resolve them.
“You’re not hearing much about Robinhood being unavailable to customers or our customer support not being helpful,” he said. “We’ve made incredible improvements in some of those core things. We’ve gone beyond that to actually improving the product systematically and rolling out new products. There’s a lot more to come.”
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