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Robinhood Would Like To Forget This Week

Image via Sebastian Herrmann on Unsplash

"We’re proud of the fact that we’ve enabled so many younger investors and first-time investors to have access to the markets." Those were the words of Robinhood co-founder and co-CEO Vladimir Tenev back in December during a CNBC interview with Jim Cramer.

This week, Robinhood, whose average user is 32 years old, gave a new meaning to the "distrupt" mantra popular in Silicon Valley. The popular commission-free stock trading service suffered a major outage on Monday that prevented its users from placing trades for the entire session. The outage was a result of "instability in the part of its infrastructure that allows the company’s systems to communicate with each other."

Rightfully so, Robinhood's users were livid. A Twitter search of conversations with the @AskRobinhood hashtag shows mostly similar sentiment, with many saying they will take their business elsewhere.

The outage even spurred the creation of a Twitter account with the handle @ClassRobinhood whose bio says "We are actively building a case against Robinhood for their negligence and late open on March 2, 2020. They have been fined by FINRA before."

Robinhood, well aware of how pissed off people were, tweeted "When it comes to your money, issues like this are not acceptable. If you’re a customer, we’re sending you info on how to contact us so we can work with you directly to address your concerns." The company said it will compensate users "on a case-by-case basis," while saying no user data or funds were lost as a result of the outage.  

The issues for Robinhood apparently weren't a one day event. The service had another outage yesterday, resulting in mostly the same responses from upset users as Monday. Robinhood, once again aware of how bad this week has been for its reputation, tweeted "We know this has been frustrating and we will work diligently to provide the level of service you deserve."

How this debacle affects Robinhood in the long term remains to be seen. The company was most recently valued at $7.6 billion and has become increasingly popular, even surpassing 10 million users in December.

On the other hand, the brokerage industry has begun to go after Robinhood as most major brokerages have joined the startup in offering commission-free trading. The brokerage industry is also rapidly consolidating, with Morgan Stanley dropping $13 billion to buy E-Trade and Charles Schwab spending $26 billion to acquire TD Ameritrade.

With unicorns now having trouble going public at their private market valuations and Robinhood's competitors buying each other, it will be interesting to see what the future holds for Robinhood given this week's events have cost the company its users' trust.

Leftover Crumbs

  • All it took was a 10% correction. The Federal Reserve cut its benchmark interest rate by 50 basis points to a range between 1% and 1.25% over fears the coronavirus will have a negative impact on the U.S. economy. The move was the first emergency rate cut by the Fed since December 2008, during the depths of the financial crisis. Fed Chairman Jerome Powell said "Against this background, the committee judged that the risks to the U.S. outlook have changed materially. In response, we have eased the stance of monetary policy to provide some more support to the economy." Powell may have disappointed investors looking for more, saying "In the current context, no. What we discussed, the current stance of policy, is it appropriate. We came to the view that it was appropriate to make changes and went ahead and did that today."

  • How things have changed. 10-year Treasury yields fell below 1.0% for the first time ever yesterday following the Federal Reserve's emergency rate cut. U.S. President Trump wants the Fed to cut further, tweeting "The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!" Trump used to to dislike low interest rates, however, saying in 2016 "The ones who did it right — they saved their money [and] they cut down on their mortgages, ... and now they’re practically getting zero interest on the money."

  • They'll have none of it. Amazon has removed more than 1 million items from its website for price gouging and misleading claims amidst the rush to buy supplies for the coronavirus outbreak. "There is no place for price gouging on Amazon," a company spokesperson said. "We are disappointed that bad actors are attempting to artificially raise prices on basic-need products during a global health crisis, and, in line with our longstanding policy, have recently blocked or removed tens of thousands of offers."

  • He's still apologizing. SoftBank CEO Masayoshi Son continued to voice his regrets over the company's recent poor investments at a meeting with investors this week. "I promise you I’ll start to be more careful and listen. My view doesn’t change, but my behavior becomes a little more careful," Son reportedly told investors. Son tried to persuade investors that SoftBank stock is a bargain, pointing out that the company's value trades below its assets. SoftBank is facing pressure from activist investor Elliot Management to buy back shares and improve its governance practices.

  • They're letting others in on it. Alphabet's self-driving unit Waymo has raised funds from outside investors for the first time in its 11-year history. Waymo raised $2.25 billion at an undisclosed valuation from auto parts supplier Magna International, auto dealership chain AutoNation, the Canada Pension Plan Investment Board and investment firms Silver Lake, Andreessen Horowitz and Mubadala Investment. Waymo CEO John Krafcik said it is "certainly a possibility for the future" that Alphabet plans to sell or spin off Waymo.