It’s definitely fair to say that zero-commission investing platform Robinhood (NASDAQ:HOOD) could use some good news right about now. After all, the price performance of HOOD stock since August has been rather unimpressive.
I’ve called Robinhood’s rise in popularity the most important event in the financial markets of the past decade. I’ll reiterate that sentiment here, as the democratization of stock and cryptocurrency trading will undoubtedly have a ripple effect for many years to come.
At the same time, the company that started the ripple effect is having major problems. It’s even been suggested that Robinhood’s existence is threatened by the potential actions of regulators.
What the owners of HOOD stock need right now is some positive news – or at least, reassurance that Robinhood is still responsive, proactive and willing to make some basic changes. Otherwise, the skeptics will be proven to have been right all along.
A Closer Look at HOOD Stock
It seems like years ago now, but on July 29, Robinhood priced its shares for the public at $38, at the lower end of the expected range.
The stock fell 8% on that first day of trading, but soon shot up to a high of $85 in early August. It’s possible that Reddit users were partially responsible for that massive rally. Moreover, some folks on Robinhood’s trading platform probably decided to buy the company’s shares.
Then came Aug. 18, when Robinhood released its second-quarter financial results. The company incurred a net earnings loss of $502 million, which equates to $2.16 per share. That’s a big miss compared to analysts’ average outlook of a quarterly loss of 15 cents per share.
By the day of the earnings release, HOOD stock had already slid to $50. The financial results didn’t help at all, as the share price continued to drift downward in the wake of the report. Yesterday the shares closed at $40.53, and they seem to be going nowhere fast.
Battling the “Nanny State”
In case the bears didn’t have enough ammo, along comes U.S. Securities and Exchange Commission (SEC) Gary Gensler with what sounds like an ominous threat.
Gensler, in a recent Barron’s interview, declared that the practice of payment for order flow creates an “inherent conflict of interest.” Furthermore, Gensler revealed that an outright ban of payments for order flow is “on the table.”
In Q1 alone, Robinhood received a whopping $331 million of order-flow payments. So compensation from market makers for routing orders to them has evidently been an important part of Robinhood’s business.
Dan Gallagher, the legal chief of Robinhood and a former SEC commissioner, had some harsh words for the SEC (and, I’m guessing, for Gensler in particular).
“Regulators need to catch up,” Gallagher asserted. “It’s more this nanny state first,” he continued, while suggesting that regulators are taking a position of “we need to insert ourselves instead of just recognizing the rule book’s old.”
The Phones Are On
There’s no doubt that Robinhood has rewritten the rule book on more than one occasion. And a new change suggests that it’s revising the rules once more.
Robinhood has been famous for commission-free trading, but until recently, it hasn’t been known for providing responsive, easily accessible customer service and tech support.
However, that’s reportedly changing. In an attempt to build a brokerage “for everyone,” Robinhood is finally introducing 24/7 phone-based customer support. For some customers, the reaction is going to be, “It’s about time.” Indeed, one can only wonder what took Robinhood so long to implement this change.
But hey, better late than never. Still, don’t count on having your call answered immediately.
“Start by requesting a call in the Robinhood app. We’ll send you a notification when you’re next in line for a call,” the company instructed.
I have a funny feeling that Robinhood will be flooded with phone calls, and the wait times will likely be quite lengthy. Nevertheless, this customer-centric move should help to keep Robinhood competitive against similar brokers like WeBull.
The Bottom Line
I’ll let you decide whether Robinhood’s problems outweigh its competitive advantages. Robinhood still has brand-name recognition and a large customer base. Plus, now it’s offering around-the-clock phone support.
However, let’s not dismiss the threat from the SEC, as well as the company’s disappointing earnings results. All in all, a small position in HOOD stock should be fine for many investors.
Just don’t load up on the shares – and if you’re planning to call Robinhood’s customer support number, include some waiting time in your schedule.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.