Robinhood's layoffs will improve profitability and could boost shares in the near term, analysts say

Published Wed, Aug 3 20226:35 AM EDT

Robinhood 's 23% cut to its staff will boost profitability and could move shares higher in the near future, according to some analysts. The company on Tuesday announced the staff reduction shortly after the bell — which comes just a few months after Robinhood cut 9% of its workforce — and preannounced earnings showing a decline in monthly active users. The financial services company missed revenue estimates but reported a smaller-than-expected loss as it looks to bring costs under control. "However, we believe the 23% headcount reduction is the most important detail, and while investors will likely want to understand the company's ability to invest in growth initiatives with a lower cost base, we believe these cost reductions will likely drive the company to profitability in the near term and could drive shares higher," wrote Goldman Sachs' Will Nance. According to Nance, the results from the financial services company indicate lower transaction-related revenues and lower expenses, among other findings, and should help Robinhood reach breakeven profitability next year. Similarly, Piper Sandler's Richard Repetto believes the workforce cuts could help the company hit breakeven adjusted EBITDA by the end of 2022. Mizuho's Dan Dolev remains bullish on the stock going forward, saying in a note to clients that there are more positive than negative takeaways from the results. "We believe that once the market digests the "shock" from the layoff's sheer size, investors will shift focus to fundamentals and path to profitability, which may even result in the stock trading higher tomorrow," he wrote. To be sure, not all analysts are convinced the results show promise ahead for the stock-trading platform. JPMorgan's Kenneth Worthington maintained an underperform rating on the stock, noting that the company continues to struggle across several areas. "While the founders have leveraged innovation, guts, and ideal market conditions to build a leading US retail broker, we do not see growth as sustainable, and we question the ability of the company to generate competitive margins over time given the focus on such small accounts that have limited room to be profitable," he wrote. At the same time, a miss on monthly active users and Robinhood's cautious outlook going forward could lead shares lower, wrote Citi's Jason Bazinet. Shares of Robinhood have plummeted 48% this year and sit more than 89% off their 52-week high. When the stock went public in July 2021, shares traded at $38 a piece and skyrocketed as high as $85 within the first month of trading. Robinhood's stock rose more than 1% in the premarket. — CNBC's Michael Bloom contributed reporting