Over the past decade or so, stock trading apps exploded in popularity. For example, the Robinhood app launched in 2015, and since then gained millions of users. The mission statement behind the app involved providing market access for all users, not just highly dedicated traders. As such, the app’s name almost became obvious – based on the classic Robin Hood story. In English folklore, Robin Hood took from the rich and gave to the poor. As such, despite being an outlaw, the common folk of England had an affinity for Robin Hood. However, the Robinhood app may be more like the Sheriff of Nottingham than Robin Hood himself.
The GameStop Short-Selling Plan
Over the past few weeks, an online community (the subreddit “WallStreetBets”) recognized that certain hedge funds short-sold GameStop stock. Without getting into the weeds on the shorting process, the point is that GameStop’s stock price would fall. As the price falls, the hedge funds make money, while GameStop suffers losses. The WallStreetBets subreddit recognized this trend, and decided to throw a wrench into the process. The subreddit users bought GameStop stock and held it; this drove the stock price up, and ruined the hedge fund shorting strategy. The trend escaped WallStreetBets and became widely popular, leading to GameStop stock purchases across the globe.
Some of these purchases occurred on mobile applications, such as Robinhood. Robinhood brands itself as a platform for “Investing for Everyone,” linking back to the original Robin Hood folklore. Robinhood’s website even states that “We’re on a mission to democratize finance for all,” again, evoking thoughts of Robin Hood. However, on January 28, 2021, Robinhood shadow banned certain stocks popular on WallStreetBets. Robinhood users could no longer find stocks, such as GameStop or AMC; instead, Robinhood limited new stock purchases for volatile stocks, and users could only sell existing stocks. Unsurprisingly, the past week saw hedge fund managers running to financial shows pleading for the stock purchases to end; indeed, that is the only way the funds would be able to short the stocks again for profit.
Robinhood – Taking from the Rich and Giving it Right Back?
What does that mean for Robinhood? It means the app’s review rating on the Google Play store plummeted to one-star overnight. Google since removed many of the one-star reviews, boosting Robinhood back to a four-star rated app. However, the fallout from Robinhood’s decision to limit trades could be devastating. Other apps that limited trading this week did not see the backlash Robinhood saw. It is likely that Robinhood’s backlash resulted from acting not like Robin Hood, but instead like a stock trading police force. Many mobile trading apps exist; users originally chose Robinhood, likely due to its branding and marketing. However, once those users leave the app, they likely will not return.
The stock currently trades for $194, with a recent high of $470. Over the past six months, though, the stock routinely traded for $5 – $10.
Limited trading on GameStop and AMC stocks look set to continue on January 29, 2021, per a company statement.
Robinhood must regain public trust at this point; however, it is unlikely that a rebrand to a new trademark would be the app’s strategy. At least not at first.