KEY POINTS

  • Robinhood added 3 million customers in Q1 2020
  • Robinhood had more daily average revenue trades than its rivals by June
  • Despite increasing valuation and user growth, the app is criticized for having complicated financial tools 

Trading app Robinhood secured fresh investments from D1 Capital Partners, raising $200 million that effectively put the company’s valuation at $11.2 billion. Just last July, the free stock trading app, which also offers Bitcoin trading, received $600 million from a Series F funding, putting the company at $8.6 billion. Robinhood’s valuation has increased by 30% in less than one month. 

Robinhood said it would use the fresh funds to improve its core product and strengthen its customer experience. The site’s Learn resources has increased its daily traffic by 250% while its newsletter has 20 million weekly readers, said news outlet Decrypt. The company is also hiring new personnel in its Arizona and Texas locations to boost its customer support. 

Robinhood, like other companies that offer retail brokerage accounts, has benefitted during the coronavirus pandemic. People in lockdown dabbled in the markets and Robinhood emerged as the platform of choice for Millennials versus other services like Charles Schwab and ETrade. In Q1 2020, it gained 3 million new customers, which put its base past 13 million. By June, Robinhood had more daily average revenue trades than its rivals, the Financial Times reported.

The new funding also sparked speculations that the company is planning to go public soon. “Seeing that kind of jump in valuation shows they have the velocity and momentum on their side,” said Michael Underhill, a fund manager and chief investment officer at Capital Innovations.

However, the increase in user demand at times overwhelmed the app, causing multiple downtime periods that led to customers being outraged. Some customers sued the company over losses due to the downtime, the Financial Ties added. 

The company also continues to face criticism over providing complicated financial tools to new investors who do not understand such instruments. In June, a 20-year old student name Alex Kearns committed suicide after wrongly believing that he lost $750,000 from a trade. It turned out the number is just “potential loss” and that his account still had $16,000. Robinhood has since vowed to tweak its app to clearly show users their financial exposure to avoid confusion.

A popular trading program for young investors, Robinhood has been criticized for not building enough protections into its platform A popular trading program for young investors, Robinhood has been criticized for not building enough protections into its platform Photo: AFP / JIM WATSON