Robinhood Markets Inc. saw its shares climb sharply in premarket trading on Thursday, reaching $105.20, an 8.7% gain from the prior close. The move came as investors focused on the company's record June trading activity and cost-cutting measures, even as management flagged potential legal and operational risks tied to the restructuring.
The online brokerage disclosed plans to cut approximately 10% of its full-time staff, along with an estimated $28 million in restructuring charges for the second quarter. The charges include roughly $20 million in cash costs for severance and benefits, plus $8 million in share-based compensation, according to a securities filing.
CEO Vlad Tenev told staff that the company's business has never been stronger, but emphasized the need to maintain a lean and hyper-focused team, as reported by Reuters. The layoffs are not a sign of pullback but rather a move for operational discipline, the company stated.
Record trading volumes provided a strong backdrop. Robinhood reported that its average daily trading volumes in June so far have hit all-time highs across equities, options, and prediction markets. Funded customers reached 27.7 million by the end of May, while platform assets surged 48% year over year to $377 billion. May's equity trading volume was $315 billion, up 75% from a year ago, and options contracts rose 29% to 231 million.
Analysts responded positively to the news. Argus analyst Stephen Biggar raised his price target to $110 from $90, maintaining a Buy rating, citing headcount reductions, increased trading activity, and slower expense growth. Deutsche Bank also lifted its target to $105 from $103, according to TheFly via TipRanks.
However, the company faces regulatory headwinds. The Securities and Exchange Commission is working on a rule that could allow crypto companies to list tokenized stocks—digital tokens that mirror real shares and trade around the clock. Coinbase has expressed interest in launching such products in the U.S. if the policy is approved. Robinhood and Kraken already offer tokenized stocks abroad, which could put them in direct competition with established players like Charles Schwab.
In its filing, Robinhood warned that the staff reductions could lead to legal, reputational, financial, and operational risks. If trading volumes decline, the cost cuts may not be sufficient to offset revenue shifts. Additionally, tokenized stocks may not provide investors with the same rights, disclosures, or protections as traditional shares, Reuters noted.
The broader market environment added pressure. The S&P 500 fell 1.21% and the Nasdaq dropped 1.34% on Wednesday after the Federal Reserve signaled a potential for more rate hikes this year. Robinhood's move came during this downturn, with timing seen as strategic.
For now, Robinhood's stock is trading on two interconnected bets: that management can keep costs under control and that retail trading activity remains strong enough to support the higher valuation. The real test will come when regular trading begins, as the company aims to hold onto Wednesday's gains.
