Risk/Reward Rating: Negative

Robinhood has become somewhat of a household name over the past year, which has been a period of speculative frenzy in the financial markets. The company gained its fame by offering a simplified, user-friendly mobile app for stock and options trading. This slimmed down mobile interface attracted many new investors to the financial markets. In fact, the company estimates that 50% of all new accounts are people with no prior investment experience.

Robinhood reported its first financial results as a public company last evening. The stock was down 8% in midafternoon trading in reaction to the Q2 2021 earnings report. In fact, the Q2 report created more questions than answers for prospective and existing Robinhood investors. The questions revolve around the company’s business model. On the conference call discussing the Q2 results, the company described its mission as follows: Our intention is to be the single money app for our customers, the single place for all things money.

This vision contrasts with Robinhood’s business success to date as discussed in the opening paragraph. The company gained traction with users by offering a simplified user-friendly trading app rather than a financial supermarket app for all things money. This discrepancy between the current vision and the success Robinhood has achieved to date is beginning to show in many of the firm’s key financial statistics. It is worthwhile to consider each in turn.

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