Robinhood May End up Facing a Huge Loss in Revenues and Stocks
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Ever since the beginning of the second quarter of 2021, Robinhood has started experiencing somewhat of a downtrend in terms of its revenues. At first, Robinhood did not record the amount of rising in the share prices as it had anticipated at the time of going public.
If that downfall was not enough, the company has even started experiencing a drop in its revenue generation from cryptocurrencies. Just recently, Robinhood shares its earnings and revenue report for the second quarter of 2021.
Although Robinhood did manage to achieve a higher revenue than the estimated, yet its growth in the previous quarter was much higher than the last one. This is the reason why Robinhood is now constantly losing its ground and so are its share prices.
The data shows that as of Monday, August 30, 2021, the share prices for the company experienced a 6.9% drop. As a result, the share prices for Robinhood came all the way down to $43.64 per share.
A major factor behind the loss in share prices for Robinhood is the recent statement made by Gary Gensler from the Securities and Exchange Commission. Just recently, Gensler expressed the possibility of banning order flow service for payments. Gensler called it a practice that is controversial and there are high possibilities that it may get banned.
According to Gensler, the process of order flow payments is completely a conflict of interest and unfortunately, it is inherent. In this process, a brokerage stays at the back-end, directing clients to market makers where they perform trades. However, the brokerages take payments for referring the clients to such investment markets.
At present, one of the largest revenue-generating sources for Robinhood is indeed order flow. This means that if this particular service is banned, Robinhood may end up losing a huge chunk of its revenue. This is the reason why the investors of Robinhood are in a state of panic.
For a long time, order flow payments are considered highly controversial and their practice is considered unethical in many sectors. Finally, the particular space caught the attention of regulators, especially the regulatory authorities related to financial industry regulations.
So far, the Securities and Exchange Commission has kept a silent stance on its statement and further actions it is planning to take. However, Gensler has been very vocal against the payment for order flow practices and as per him, it should be banned right away.
As of now, the regulatory authority is planning to come to a conclusion in regards to going through its options. There are high chances that the payment for order flow practice may get banned by the regulator in the coming months.
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