Daily Column – 28th January 2022

It looks like the glory days of meme stocks are over. Same goes for the trading app that propelled them to fame.

When Robinhood reported a bigger loss than expected and said that it expected to make less money in the first quarter than it did last year, the stock fell about 12% after-hours Thursday.

Investors have been asking lots of tough questions of the company recently. There’s been a big drop in Robinhood’s stock since it was at its high last August. It was once worth about $60 billion, but now it’s worth less than $10 billion, not $60 billion.

Sign of the times: Robinhood, which had been the king of the App Store, has fallen to #16 in the finance category alone. Even the IRS app is more popular.

To explain what happened, let’s rewind

One year ago, Robinhood got a lot of hate on the internet because it stopped people from trading in GameStop and other stocks that were very volatile. As soon as there was a lot of confusion, Robinhood said that “extraordinary” things happened that led to it being forced by regulators to stop trading in order to meet clearinghouse deposit requirements.

While the trading pause was only for a short time, its effects still last.

Robinhood has been sued by people who say the restrictions on individual traders caused them to lose money. This month, Robinhood paid out its first arbitration award.

It also lost a lot of its good name. Before January 28, 2021, it was thought of as the champion of the individual trader. After that, it was thought of as the friend of Wall Street.

This is what Robinhood said in a statement about the events of last January. It said that it took a number of steps to make sure that trading restrictions would never happen again. These steps included strengthening its net capital position and improving its compliance and risk infrastructure.

Big picture: In early 2021, the Robinhood app was a must-see for a new generation of individual investors because stock and crypto prices changed so much each day. Bloomberg Opinion’s Jared Dillian says the app looks less appealing now that meme stock mania has faded, markets are nervous about interest rate rises, crypto prices are down, and hyperactive day trading has been partly replaced by “buy and hold” strategies. This is because hyperactive day trading has been mostly replaced by “buy and hold” strategies.

Looking at the next few years…

If Robinhood has a low share price and a lot of people who want to use it, some analysts think it might get bought.

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