The meme stock craze reached its peak in 2021. The massive market volatility also invited scrutiny from lawmakers as well as the US SEC. last week, The House Financial Services Committee issued its report on meme stocks which sheds more light on the meme stock mania and Robinhood’s woes during the frenzy.
As most would recall, there was a buying frenzy in many stocks like AMC, GameStop, and BlackBerry as Reddit traders bought these stocks. Almost all of these stocks have since tumbled and trade well below their all-time highs.
There is a long list of meme stocks and some are companies with strong fundamentals. Some like BlackBerry are turnaround candidates. BlackBerry stock rose last week after posting better-than-expected earnings.
Meme Stock Mania has Subsided
Robinhood earned the ire of regulators as well as retail traders for its role in the meme stock mania. While regulators probed the company’s role in the euphoria, many retail traders were irate with the company for blocking trading in meme stocks. Retail traders suffered massive losses after Robinhood temporarily blocked trading.
However, as destiny would have had it, post its dismal listing in 2021, retail traders made a meme stock out of Robinhood also. The stock surged way above its IPO price of $8. The stock has since plummeted and trades below $8. Along with the sell-off in growth names, Robinhood is also battling a growth slowdown and has been losing active users. The company’s crypto revenues have also nosedived. To make things worse, the SEC is contemplating acting against the payment for order flow mechanism that accounts for a significant portion of Robinhood’s revenues.
House Report on Meme Stocks Reveals How Bad Things Were for Robinhood
The House report titled “Game Stopped: How the Meme Stock Market Event Exposed Troubling Business Practices, Inadequate Risk Management, and the Need for Legislative and Regulatory Reform,” provides insights into the meme stock phenomenon. Among others, it notes that Robinhood and Citadel Securities had a spar over payments for order flow.
The report said that Robinhood employees scrambled to compile reports amid the trading frenzy. It also said that Robinhood employees did not understand the clearing house requirements. Also, the company turned off the automatic approvals for new accounts and by January 29, it had 730,000 new customer applications waiting to be approved.
Meanwhile, the trading frenzy has since subsided and it is reflected in Robinhood’s earnings and other operating metrics also. The company is now planning to increase its average revenue per user this year to turn profitable on the adjusted EBITDA level.
Report Accused Robinhood of Troubled Business Practices
The report said, “Robinhood exhibited troubling business practices, inadequate risk management, and a culture that prioritized growth above stability during the Meme Stock Market Event.”
The House report added, “Robinhood asserted to the public and testified to the Committee that the company was “always comfortable with [its] liquidity” leading up to its historic trading restrictions, despite the actions undertaken by Robinhood’s executive leadership to respond to liquidity issues it faced in the days leading up to the Meme Stock Market Event.”
Meanwhile, Robinhood actually took a very measured approach when it came to cryptocurrencies. The company had a handful of cryptocurrencies on the platform and despite spirited lobbying by Shiba Inu fans, it did not immediately add the crypto to the platform. While the company eventually added Shiba Inu, it was quite late as the frenzied trading in the meme cryptocurrency had since died down.
While Wall Street analysts have been generally turning bearish on Robinhood stock amid slowing growth. But, Goldman Sachs today upgraded the stock from a sell to neutral saying it finds the risk-reward balanced. It however downgraded cryptocurrency exchange Coinbase from a neutral to sell. Both Robinhood and Coinbase listed in 2021 but the latter opted for a direct listing instead of an IPO.
Related posts
- eToro vs Robinhood – Which is Best?
- Best Stocks to Buy Now on Reddit – Most Recommended Reddit Stocks
DeFi Coin (DEFC) - Undervalued Project
- Listed on Bitmart, Pancakeswap
- Native Token of New DEX - defiswap.io
- Up to 75% APY Staking
- Whitepaper and DeFi Tutorials - deficoins.io