Is Robinhood Desperate for Cash?

Yesterday I received an email from Robinhood offering a 5% match on deposited funds up to $150. That’s not an insignificant amount of money. I have no idea how many people received the offer, but it is going to be a significant cost.

My most recent moves were that I transferred like half my account out of Robinhood and I bought one share of GME. I bought the one share (which I am down like 60%) because I figured it was worth $250 to be named on all of the class action lawsuits that are about to follow. If you’ve read my previous posts, I obviously didn’t do this thinking the price would go up. Well worth it in my opinion.

I can think of a few reasons why Robinhood decided to light even more money on fire:

  1. They just raised $3.4bn to address liquidity issues. It is probably cheaper for them to pay 5% to existing customers and try and get them to stop pulling money out than have to deal with massive withdrawals and risk a bank run.
  2. They are going public soon and don’t want to show overall deposits dropping significantly because they drastically mismanaged this GameStop fiasco. If they can just get to the IPO everyone who works there will get rich, it’s worth dumping.
  3. They are offering me free money because I own one share of GME and they want to build their brand back from the grassroots – the little guy. Hey, don’t call me a little guy!
  4. Their marketing department has too much money

It’s honestly not a terrible move. It’s common practice to pay people to use your services. In fact it’s a hilarious cycle. Hyped up stock prices lead to companies issuing shares and raising cheap money. They use that money to acquire customers. Everyone takes this money and then looks up the stock. Wow, look how many new customers they have! I should buy that stock. Then the company issues more stock.

There will eventually be a reckoning day for every company that doesn’t produce a profit. It’s not going to be today though. Probably not tomorrow.

Robinhood has 13mm customers as of 2020 (Wikipedia?). If 1% of those customers deposit $3k, then deposits go up by $390mm and it costs them $19.5mm. No one deposits exactly $3k, so they’ll probably end up paying less than 5% on deposits. They should have really done this a month ago during the hype and really jacked up how much money they manage. Then pushed their savings account, maybe spin up a few mutual funds and they could be like a real bank.

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