Robinhood App Downloads At All-Time High, Despite Controversy
Isadora Teich wrote this article
Over the past week or so, if you’ve been on social media or online, you’ve likely seen the total pandemonium surrounding what has been called “The Reddit Takeover of the Stock Market.”
Experts and speculators have been seriously discussing if small investors can come together en masse to passive aggressively disrupt, and even crash the whole market.
Caught in the eye of the storm is Robinhood, a stock trading app which markets itself to the every day stock trader.
Maybe you’ve heard about the legal action mounting against them, or seen major news sources like CNBC and Bloomberg talking about Robinhood’s branding crisis.
Suddenly, shorting stocks and talks of the stock market are everywhere, and very noticeably not just from those on Wall Street. You may have questions.
Why has Reddit banded together to inflate failing companies, and how has this caused hedge funds to lose billions?
And why has Robinhood become the common punching bag of everyone from redditors to legislators, including republicans like Ted Cruz and famous progressives like Alexandria Ocasio-Cortez?What can we, here in the business of apps, learn from all of this? Click To Tweet
Let’s take a look.
How We Got Here
Many people hear about stocks and automatically feel lost.
In this post, we are not going to unpack all of the mysteries of the market, but provide a very basic rundown of what you need to know about this situation:
1. On the social media platform Reddit, there is a community for individual investors called r/WallStreetBets.
2. It used to be small, but partially due to lockdowns, economic stimulus, low interest rates, and this whole debaucle, many first time investors joined the market and the community in 2020 and 2021.
3. Robinhood is a trading app that has marketed itself as the app for the little guy, and aggressively utilized influencer marketing to “democratize trading” and become popular with young investors on social media. Many people on r/WallStreetBets use it.
4. One way that large financial corporations and hedge funds make money is by short-selling stocks, or betting that they will lose value. Hedge funds bet that Gamestop would lose value.
5. Short sellers are unpopular amongst traders. Many feel that they profit off of the demise of businesses. It is also a risky play. If the stock goes up in value, you can lose a lot of money.
6. When Reddit discovered that Gamestop and other failing businesses were being shorted, they created a campaign to buy these stocks, largely through the Robinhood app. Gamestop’s stock price, as well as others Reddit set their sit upon, like AMC, momentarily soared. This put a lot of money in the hands of individual investors, disrupted hedge funds, and led to market chaos.
What Robinhood Has Done Remarkably Well
If the story stopped there, this would be a very different blog post.
After all, Robinhood has done something quite remarkable. While most traditional financial institutions, like Bank of America and JP Morgan, offer mobile banking and trading, Robinhood was really the first one to make it a branded mobile offering for everyone.
It brought trading to a new generation of users who are accustomed to using mobile apps in their daily lives, and previous to this, might not have had the exposure to stock trading, having come-of-age during the last Great Recession.
Most financial institutions target the wealthy or older people, because they have more money.
So, they do not partner with Instagrammers and Youtubers to attract young, first time investors. They don’t really have brands in terms of stock trading. While major banks like Santander have commercials and slogans, can you remember any of them off the top of your head?
You have likely seen countless thousands of ads relating to banks. Do you remember any of them?
It’s because they don’t make trading “sexy.” One of Robinhood’s biggest campaign slogans is built around the phrase, “We are all investors.”
It has developed somewhat of a remarkable cult following and made something traditionally thought dry and inaccessible seem inclusive and cool. You can even invest in cryptocurrency. Robinhood has really taken the newbie investor market by storm.
Where Robinhood’s Problems Started
This whole situation should actually be a huge win for Robinhood, and in many ways it is.
More young people are investing via their app than ever before. It really shouldn’t matter whether they invest in Gamestop or Amazon.
In the business of apps, regardless of what your app is or does, the more people use it, the more success you have right?
Robinhood ran into problems by stopping users from buying these stocks at the height of the Reddit short squeeze. This is highly problematic for many reasons.
On one hand, many people are saying that this is stock market manipulation. What Redditors rallied to do is not illegal.
In fact, there are historic precedents on both sides of people and institutions trying to treat the market like a casino from both above and below with a wide array of schemes, both legal and illegal.
As Robinhood users were committing no crimes, Robinhood probably should not have intervened.
Especially given the messaging their platform is built around,
This has caused some users to lose trust in the brand, making them wonder if the app could restrict other random trades for different reasons going forward.
Many are wondering if this is setting up an awful precedent against app users. This is more than a branding crisis, and could end up being a legal one. There are currently dozens of class action lawsuits pending against them.
A Difficult Contradiction
A few days ago Robinhood released a letter to their community about the situation, and even within it you can see the contradiction of their stated mission with their response here is basically impossible to reconcile. The letter starts:
“To our Robinhood community,
Since day one, we’ve worked to put financial power into the hands of everybody—not just a select few. We believe the financial system should be built to work for everyone.”
However, shortly after, it continues:
“There is a lot of confusing information out there, and while we have tried to provide clarity as best we can, we want you to hear directly from us. Simply put, Robinhood limited buying in volatile securities to ensure it complied with deposit regulations.”
This falls apart for a few reasons.
For one, Robinhood is not the only institution you can invest through. While some other institutions also banned purchases of the Reddit stocks, many more did not.
And are we to assume financial giant Vanguard was breaking regulations by letting business as usual continue, for example?
Also, many stocks are volatile. The market in itself is volatile. Tesla, one of the biggest companies in the world, can bounce up and down wildly in value over the course of a single day. Is Robinhood banning people from buying Tesla in response to its volatility?
No. This is part of why many users feel that Robinhood put Wall Street before its users.
We’re witnessing something that the stock market has never quite experienced before. Standing by our Robinhood community means being there for our customers through any trading environment and communicating about the rules our industry faces.https://t.co/MF5mcyIjOX pic.twitter.com/Evve8lYjZj
— Robinhood (@RobinhoodApp) February 2, 2021
To Keep It Simple
The app is literally called Robinhood.
It has been marketed to wild success as the small guy’s key to entering the world of investing, so much so that when they stopped people from buying certain stocks, it affected the market as a whole.
This is because so many young investors use it.
The common narrative attached to this whole situation is that small investors rose up against corporate giants, who typically are the ones to profit from shorting failing businesses, and instead of siding with the little guys (their base), Robinhood sided with the hedge funds.
As they have marketed themselves as an Anti-Wall Street stockbroker, this is a massive contradiction. And it might even have legal implications for them in the long run.
They’ve recently pulled back the trading restrictions on GameStop and AMC stocks, but days went by before they decided to reverse that decision, and it comes after a CEO ousting, too.
What Can We Learn From This?
As app marketers, makers, and users, what can we take away from all of this?
I think one lesson lies in how powerful, but also fragile, app branding can be. Robinhood spent years expertly branding their app. They did this so well that many of their controversies were easily forgotten up to now.
For example, in December 2019, Robinhood was fined over a million dollars for failing to give customers the best price when they ordered securities. Despite being found guilty of not acting in their customers’ interests over a year ago, their branding of being ‘for the people’ was so strong that it hasn’t stopped them.
In fact, even despite the current controversy, Robinhood downloads are at an all time high.
The day they restricted trading and this controversy dominated the news cycle, they had their single biggest download day on record. Over 400,000 people in the US downloaded it for the first time.
It is possible that some of those downloads are from users who really don’t understand investing and the market, and simply seeing Robinhood in the news was enough to sway them, current brand controversy aside.
Like all companies and tools, Robinhood has its pros and cons, but it’s very possible that newbie investors have no idea how to weigh them.
For now, Robinhood is still the clear winner in this scenario. However, with one decision they almost undid years of branding work, totally broke trust with their core base, and now have numerous looming legal issues.
What do you think? Do you think we will see large changes because of this? Or do you think this all will be forgotten in a week?
Talk to me.
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