Wall Street Breakfast: Democratizing Finance For All

Democratizing finance for all - It was set to be one of the year's most highly anticipated listings, but Robinhood Markets may have to do more to convince investors to scoop up its shares. The stock trading app, which has surged in popularity among retail investors, priced its IPO at $38 on Wednesday - at the low end of a marketed range - and will begin trading on the Nasdaq today under ticker symbol "HOOD." It also detailed plans to reserve up to 35% of shares for users of its app, which could purchase the stock at the IPO price through a new product called IPO Access.Backdrop: Robinhood busted onto the brokerage scene back in 2013 with a mission to democratize the investing landscape. It has experienced tremendous growth in recent years and eventually prompted competitors like TD Ameritrade (NYSE:SCHW), Charles Schwab (SCHW) and E-Trade (NYSE:MS) to adopt its model of zero-commission trades. The coronavirus pandemic was also a boon for the app as homebound people turned to online trading, while a stampede of investors that have jumped into "meme stocks" and cryptocurrencies has continued to propel its popularity.By the numbers: Selling 55M shares in the offering at a price of $38, Robinhood would raise slightly over $2B (at a valuation of nearly $32B). Users have more than doubled to 18M over the 12 months through March, while revenue more than quadrupled over the same time period to $1.4B. However, meme-stock madness has led to big losses of late and the company agreed to pay $70M to settle a FINRA probe in June. Options trading accounts for about 38% of Robinhood's revenue, while equities and crypto are 25% and 17% of sales, respectively.Advantages: Growth is off the charts and half of all brokerage accounts opened in the U.S. from 2016 to 2021 have been set up on Robinhood. The company is also hoping to expand into other initiatives, like IRAs and Roth IRAs, to help turn short-term investors into long-term ones. It could also offer other types of services like debit cards, credit cards, car loans and crypto wallets.Risks: The app has been in the regulatory spotlight over gamification, which encourages users to trade more via rewards and celebratory notifications. Payment for order flow, the way Robinhood makes money, has additionally come under intense scrutiny, as it could create conflicts of interest and prevent investors from getting the best price for their trades. Retail investing could also slow and the Robinhood prospectus named seven U.S. state and federal bodies investigating the app.Outlook: 2021 hasn't been a good year for big IPOs in the U.S. Among companies that have raised more than $2B - including AppLovin (APP), Bumble (BMBL), Coupang (CPNG), DiDi (DIDI), Playtika (PLTK) and Shoals (SHLS) - all are down by double digit percentages since their first close. The Renaissance IPO ETF (NYSEARCA:IPO) is also off 19% from its February highs and down more than 5% YTD. That could signal that the market is having a harder time digesting bigger deals - amid a glut of massive equity issuances - and may deter investors from buying more IPOs if they are already underwater. (9 comments)

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It was set to be one of the year's most highly anticipated listings, but Robinhood Markets may have to do more to convince investors to scoop up its shares. The stock trading app, which has surged in popularity among retail investors, priced its IPO at $38 on Wednesday - at the low end of a marketed range - and will begin trading on the Nasdaq today under ticker symbol "HOOD." It also detailed plans to reserve up to 35% of shares for users of its app, which could purchase the stock at the IPO price through a new product called IPO Access.

Backdrop: Robinhood busted onto the brokerage scene back in 2013 with a mission to democratize the investing landscape. It has experienced tremendous growth in recent years and eventually prompted competitors like TD Ameritrade (NYSE:SCHW), Charles Schwab (SCHW) and E-Trade (NYSE:MS) to adopt its model of zero-commission trades. The coronavirus pandemic was also a boon for the app as homebound people turned to online trading, while a stampede of investors that have jumped into "meme stocks" and cryptocurrencies has continued to propel its popularity.

By the numbers: Selling 55M shares in the offering at a price of $38, Robinhood would raise slightly over $2B (at a valuation of nearly $32B). Users have more than doubled to 18M over the 12 months through March, while revenue more than quadrupled over the same time period to $1.4B. However, meme-stock madness has led to big losses of late and the company agreed to pay $70M to settle a FINRA probe in June. Options trading accounts for about 38% of Robinhood's revenue, while equities and crypto are 25% and 17% of sales, respectively.

Advantages: Growth is off the charts and half of all brokerage accounts opened in the U.S. from 2016 to 2021 have been set up on Robinhood. The company is also hoping to expand into other initiatives, like IRAs and Roth IRAs, to help turn short-term investors into long-term ones. It could also offer other types of services like debit cards, credit cards, car loans and crypto wallets.

Risks: The app has been in the regulatory spotlight over gamification, which encourages users to trade more via rewards and celebratory notifications. Payment for order flow, the way Robinhood makes money, has additionally come under intense scrutiny, as it could create conflicts of interest and prevent investors from getting the best price for their trades. Retail investing could also slow and the Robinhood prospectus named seven U.S. state and federal bodies investigating the app.

Outlook: 2021 hasn't been a good year for big IPOs in the U.S. Among companies that have raised more than $2B - including AppLovin (APP), Bumble (BMBL), Coupang (CPNG), DiDi (DIDI), Playtika (PLTK) and Shoals (SHLS) - all are down by double digit percentages since their first close. The Renaissance IPO ETF (NYSEARCA:IPO) is also off 19% from its February highs and down more than 5% YTD. That could signal that the market is having a harder time digesting bigger deals - amid a glut of massive equity issuances - and may deter investors from buying more IPOs if they are already underwater. (9 comments)

Stocks

Investors continue to size up comments from Jerome Powell after the Fed concluded its two-day meeting by keeping interest rates in a target range between zero and 0.25%. No move was made on asset purchases, and while the economy is "making progress" toward its goals, it has ways to go before the central bank will adjust its easy policies. "We have some ground to cover on the labor market side," Powell declared. "I would want to see some strong job numbers." Overnight: Dow +0.4%; S&P 500 +0.1%; Nasdaq -0.3%.

Bigger picture: With the Fed tiptoed around the subject of tapering, markets will be looking to the Jackson Hole gathering in August for some clarity. The conference should also provide updates on whether the Fed will continue to allow inflation to run hotter than usual. Powell additionally relayed his views on the Delta variant, which is rapidly spreading across the world and the U.S.

"What we've seen is with successive waves of COVID over the past year and some months now, there has tended to be less in the way of economic implications from each wave," Powell announced at his post-meeting news conference. "We will see if that is the case from the Delta variety," but later said, "We've kind of learned to live with it."

On the economic calendar: Amazon (AMZN) is set to report earnings after the bell, with analysts watching e-commerce numbers during the current stage of the pandemic. The U.S. economy is also forecast to have grown at the strongest pace of the year, with Q2 data this morning expected to show GDP expanding at an annual rate of 8.4%. A bipartisan group of lawmakers meanwhile struck a deal on a roughly $1T infrastructure package, sending the agreement past its first procedural hurdle with a 67-32 vote in the Senate.

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Earnings

Shares of Facebook (FB) slipped almost 4% in AH trading on Thursday despite logging another easy earnings beat for the tech sector this season. Like its peers, the social media company posted a hefty revenue increase of 56% Y/Y to $29B, higher than the high-end analyst estimate. It's another linchpin in the robust advertising recovery story, but investors treaded carefully as user numbers only came in line with expectations.

Bigger picture: Monthly active users of 2.9B rose 7.4% from the same period a year ago, as expected, while daily active users gained as forecast, +6.7% to 1.91B. As with Google (GOOG, GOOGL), Facebook warned that revenue growth would "decelerate significantly" as it "lapped periods of increasingly strong growth." Looking at a two-year comparison, it expects revenue growth to decelerate "modestly" compared to Q2's rate, but also expects ad targeting headwinds this year from "regulatory and platform changes, notably the recent iOS updates."

On a subsequent earnings call, CEO Mark Zuckerberg sounded a tone that was aimed toward the future, instead of looking back. Three key themes were discussed: creators, commerce and "building the next computing platform" (i.e. developed from AI, machine learning and VR). Facebook will invest $1B and keep creator tools free to use through 2023 and "work our way down the stack and build world class services at every layer of commerce." He also noted that video has become the primary way in which users interact with the platform, accounting for almost half of all time spent on Facebook (Reels is also the largest contributor to engagement growth on Instagram).

Into the Metaverse: "The metaverse is a virtual environment where you can be present with people in digital spaces. You can kind of think of this as an embodied Internet that you're inside of, rather than just looking at," according to Zuckerberg. "We believe this is going to be the successor of the mobile Internet... the defining quality of the metaverse is presence: creation, avatars, and digital objects. In addition to being the next generation of the Internet, the metaverse is also going to be the next chapter of us as a company." (21 comments)

Covid

Corporate America is making moves after fresh guidance from the CDC that recommended fully vaccinated people and kids should wear face coverings indoors - in areas with substantial and high levels of COVID-19 transmission. Twitter (NYSE:TWTR) is closing its offices in New York and San Francisco, just two weeks after the social media firm reopened in both cities. Facebook (NASDAQ:FB) is separately requiring its U.S. workers that return to the office to be vaccinated and Google (GOOG, GOOGL) has also jumped aboard that train.

Over in Hollywood: Netflix (NASDAQ:NFLX) has become the first major studio to introduce a blanket policy mandating vaccinations for the casts of all of its U.S. productions, according to Deadline. The requirement will also cover any crews that come into contact with them, which are known as "Zone A" workers. All staff in that category will be required to show proof of vaccination, with few policy exemptions like medical, religious and age reasons.

The news comes before President Biden is expected to announce that all civilian federal workers will need to be vaccinated against COVID-19 or face regular testing, social distancing, mask requirements and travel limits. The announcement will come at 4 p.m. this afternoon and cover 2.18M civilian employees (and possibly another 570K USPS workers). Meanwhile, Apple (NASDAQ:AAPL) is re-instituting a mask mandate at most of its U.S. retail stores, while Disney's (NYSE:DIS) domestic theme parks will require all parkgoers to wear masks indoors starting Friday.

Analyst commentary: The Delta variant is a tougher investment risk to peg than inflation, declared macro strategist Jim Bianco. "You could see a big rotation away from the reopening stocks or can take a playbook out of last year and say 'If we get rising variant and we get restrictions, more stimulus money is coming.' And, what have we learned about stimulus money? It goes right into the brokerage account. It goes right into the stock market." (6 comments)

Today's Markets

In Asia, Japan +0.7%. Hong Kong +3.2%. China +1.5%. India +0.4%.
In Europe, at midday, London +0.9%. Paris +0.7%. Frankfurt +0.4%.
Futures at 6:20, Dow +0.4%. S&P +0.3%. Nasdaq -0.1%. Crude +0.6% at $72.83. Gold +1.6% at $1827.70. Bitcoin +0.5% at $40362.
Ten-year Treasury Yield flat at 1.27%

Today's Economic Calendar

8:30 Initial Jobless Claims
8:30 GDP Q2
10:00 Pending Home Sales
10:30 EIA Natural Gas Inventory
1:00 PM Results of $62B, 7-Year Note Auction
4:30 PM Fed Balance Sheet

Companies reporting earnings today »

What else is happening...

China stocks close higher after some market reassurance.

Reservations for Ford's (NYSE:F) F-150 Lightning top 120,000.

EV battery stocks charge up as infrastructure bill advances.

Activision Blizzard (NASDAQ:ATVI) CEO pledges action after 'tone deaf' response.

Boeing (NYSE:BA) surges after showing first profit in nearly two years.

Qualcomm (NASDAQ:QCOM) 5G strength drives FQ3 beats, upside profit forecast.

PayPal (NASDAQ:PYPL) comes in light on revenue, soft Q3 outlook.

Pfizer (NYSE:PFE) 'very, very confident' booster will protect against Delta variant.

DiDi losses... Uber (NYSE:UBER) falls on report of Softbank selling one-third stake.

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Wall Street Breakfast: Democratizing Finance For All

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