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Did Robinhood Just Prove the Old Adage, "There's No Such Thing as Bad Publicity?"

By Danny Vena, Keith Speights, and Jason Hall - Feb 11, 2021 at 4:30PM

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In the wake of all the bad press, an interesting thing has happened.

Robinhood has been making headlines in recent weeks, and not in a good way. The ongoing battle between hedge funds and the investors that frequent the WallStreetBets subreddit caused the company to restrict trading on certain stocks, including GameStop (GME 9.85%) and AMC Entertainment (AMC 5.45%). This caused a revolt and outrage among the investors that use Robinhood.

On this clip from Motley Fool Live, recorded on Feb. 1, "The Wrap" host Jason Hall and contributors Danny Vena and Keith Speights discuss how the public perception of Robinhood is changing and whether or not it matters.

Jason Hall: Assuming that Robinhood can survive because they are some serious financial -- You raise $3.5 billion in five days in this environment, it's because you just lost a ton of money. Because those trading costs on GameStop, frankly, when the price was going down, somebody had to soak up the difference. So here we are. Assuming the company can survive and move through this because here's the stuff that I saw.

I saw a stat, but I haven't verified it. But since all of this mess started and the bad PR started for Robinhood, that Robinhood has added more users to its platform than all of the other major online trading platforms combined, since the bad news started for the company. So here's my question: Is Robinhood just going to be Facebook (FB 3.86%) in a year where everybody hates it, but everybody still uses it? Keith, what do you think?

Keith Speights: It's very possible, Jason, very possible. I think Facebook is a great analogy here. Because just like I was saying, for Robinhood that their customers, the users, are the product. That's the same situation for Facebook and I think the analogy is a good one.

But I do think Robinhood could see some big competition from some of the other players who may not offer free trading, but very low cost trading. So, yeah, I think you're right. I think Robinhood will still be around a year from now and still be viable. But it's not going to be beloved like it was a few months ago.

Hall: Danny, what do you think here? "Do you think it even survives?" maybe is a better question to ask you.

Danny Vena: I suspect Robinhood survives. I do think the analogy is spot on. Any time the product that you are receiving as a consumer is free, you are the product. They're making money off of you somehow.

I don't understand how they are going to get out of the trouble that they are in. I don't necessarily think that all of the money that they had to raise was because of losses. I think it's because they're saying, hey, you know what? These GameStop and AMC and some of these other stocks that are in the midst of this giant short squeeze. We think they could get crowded out of the market. We think they could crash and so we want you to put up a 100% instead of say, 30 percent that you were having to put up not too long ago. So I think they have a lot more money tied up. I don't think they've necessarily lost it all.

Hall: Got it.

Vena: But it's still an ugly, ugly situation for Robinhood.

Hall: It is.

Vena: A lot of people are going to hate them in a year.

Hall: It's whether or not they hate them enough to go somewhere else because to a certain extent these platforms get really sticky. They are just a transactional friction of moving to somewhere else. Sometimes it's not worth the hassle, so we'll see how it plays out. I promise we're going to keep watching this, Fools. We really, really are.

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Stocks Mentioned

GameStop Corp. Stock Quote
GameStop Corp.
$98.39 (9.85%) $8.82
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$198.62 (3.86%) $7.38
AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
$11.81 (5.45%) $0.61

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