Alphabet Inc., the parent company of tech giant Google, has recently announced its decision to divest its entire stake in Robinhood Markets Inc. This move marks a significant shift in Alphabet’s investment strategy, as it had been a key stakeholder in the popular trading app since its early days as an unlisted startup. The trading platform, known for its zero-percent trading fees and user-friendly interface, once held great promise in Alphabet’s portfolio.
By the end of 2021, Alphabet’s investment in Robinhood was substantial, with an estimated 4.9 million shares in its possession. However, in an August 2021 peak, Robinhood’s stock soared to $85 per share, boosting the value of Alphabet’s holdings to approximately $419 million. Despite this impressive valuation, Alphabet has gradually reduced its involvement with Robinhood. Just a few months ago, the company slashed its shares by over 90%, leaving it with a mere 612,214 shares. As of November 13th, these remaining shares are valued at around $7 million, per Reuters.
The decision to sell off its Robinhood shares is gradual. Alphabet has been distancing itself from the trading platform for some time. This step follows a tumultuous period for Robinhood, which has been struggling amidst many challenges. The Federal Reserve’s consistent rate hikes since last year have put the company on shaky ground. Additionally, the platform’s popularity has sharply declined, with users losing interest and reducing engagement.
Moreover, the collapse of FTX, a major player in the cryptocurrency exchange market, profoundly impacted Robinhood. The company was significantly affected by its dealings with the now-bankrupt FTX. Sam Bankman-Fried, former CEO of FTX, once considered acquiring Robinhood, but the deal fell through due to FTX’s preceding difficulties. In a strategic move to distance itself from the FTX debacle, Robinhood’s board recently approved a buyback of Bankman-Fried’s 55 million shares, equating to a 7.6% stake.
Additionally, Robinhood’s challenges extend to regulatory scrutiny. In December 2022, the company received a subpoena from the U.S. Securities and Exchange Commission (SEC). The investigation focuses on Robinhood’s cryptocurrency operations, including token listing and crypto custody.
Alphabet’s decision to sell its Robinhood shares reflects a broader reassessment of its investment portfolio in a rapidly changing financial landscape. This move signifies a strategic pivot for the tech conglomerate, underscoring the dynamic nature of tech investments and the volatility of the fintech sector.