Since its public debut last July, Robinhood Markets (HOOD -4.17 percent) has burned a lot of investors.
The online stockbroker went public for $38 a share, rising to $85 a month later.
However, it now trades for around $10 per share.
Robinhood’s co-founders continue to benefit at the cost of all other stockholders.
On Wall Street, Robinhood’s glitter faded as its monthly active user and revenue growth slowed and its margins deteriorated.
Rising interest rates also stopped many investors from riskier “meme stocks” and cryptocurrencies, which had powered most of the company’s growth during the pandemic, making unprofitable companies like Robinhood less tempting.
Robinhood’s SBC expenditures
It’s not usual for an unprofitable firm to subsidize important staff wages with large stock incentives.
On a non-generally accepted accounting principles (non-GAAP) basis, however, those corporations frequently remove SBC charges from their operating and net profits, referring to them as “one-time” costs.
SBC expenses, on the other hand, are frequently ongoing costs, and corporations that depend on them too heavily will continue to dilute their owners.
Because it paid significant stock awards to its co-founders and other executives following its IPO, Robinhood’s SBC expenditures were extremely high.
Vlad Tenev, the company’s CEO and co-founder, got $794 million in stock awards as part of his overall pay in 2021.
Baiju Bhatt, the company’s co-founder and chief creative officer, got $593 million in shares.
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Is Robinhood a scam?
Another important reason to stay away from Robinhood is that it is a scam.
The IPO of Robinhood and subsequent stock incentives made its co-founders billionaires.
However, as a result of this approach, the company’s total number of weighted-average shares increased by 76 percent sequentially and 276 percent year over year in the first quarter.
The stock of Robinhood is currently trading at a discount of more than 70% to its IPO price, and its high SBC expenditures make it an even less tempting investment.
A buyout, in my opinion, would be the greatest conclusion for Robinhood right now, but a takeover would make its billionaire founders even rich.
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