How Robinhood went from hero to villain in 48 hours
Welcome to Buy/Sell/Hold, Marker’s weekly newsletter that’s 100% business intelligence and 0% investment advice. Each week, our writers Steve LeVine and Rob Walker make sense of the most important developments in business right now — and give them a Buy for clever moves or positive trends, a Sell for mistakes or missed opportunities, or a Hold if they’re noteworthy but too early to call.
📈 The End of Robinhood Is Nigh 📉
The Buy/Sell/Hold Analysis
For a year or two Robinhood has been, well, a Robin Hood — a no-fee savior to little guy investors everywhere, who got on the platform, yakked it up with fellow little guys in online chat rooms and Discord servers, and collectively, day after day, drove up the price of a palette of stocks. Last May and June, I joined in the fun when the Robinhood guys drove up the price of Avis. No one stepped in, Avis’ share price eventually plunged, and folks moved on to another stock. That was enough for me, but I admired the gumption and persistence of those who stuck with it.
Yet, nothing could have prepared the little guys for the most fun any of them — not to mention us voyeurs standing on the sideline — had probably experienced in their lives: the 17-fold inflation of shares of GameStop, the has-been video game retailer, over the last two weeks. On Tuesday in Marker, James Surowiecki explained the significance lurking behind this “meme stock” boom: “Even though GameStop’s current stock price is utterly irrational…the way Redditors and others have driven its price up has been quite smart.” With his earnings, one Reddit user who goes by the name “Longjumping” posted in the community WallStreetBets that he paid off more than $23,000 in student loans. In a ton of videos about the feat, TikTokers celebrated the suffering inflicted on self-impressed, over-inflated, fat-cat hedge fund traders who had shorted GameStop.
Alas, it seemed predictable that killjoys would step in, but the institution demanding the lights turned off stung: Robinhood, which summarily ordered a halt to the sale of GameStop options, in addition to those of a slew of other companies whose shares the little guys had been driving up over the past few days — Nokia (+75%), AMC (+four-fold), Tootsie Rolls (+44%), Dillard’s (+62%), Macy’s (+44%), and Koss (+26-fold). With the suspension of trading, the shares of all of them plunged. The life raft helped hedge fund traders claw back some of their losses.
And with that, Robinhood’s fairy-tale, seven-year ride to an IPO that was slated to happen as soon as this quarter seems in question. Not only that, but the company could simply be finished as a thriving business. Robinhood infuriated its users, many of whom vowed to abandon the app as soon as they could get their money out. Some of them filed a federal class-action suit against the startup on Thursday, alleging market manipulation and breach of fiduciary duty. Senate Banking Committee Chairman Sherrod Brown said he will hold a hearing. In the House, Rep. Alexandria Ocasio-Cortez asked for an investigation into Robinhood and other trading platforms that halted stock sales.
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In an interview Thursday night with CNBC, Robinhood CEO Vlad Tenev said he decided to halt options trading in a total of 13 companies as a pre-emptive move “to protect the firm, and protect our customers.” According to Tenev, because of the scale of trading and market volatility, regulators could have required Robinhood to deposit large amounts of cash with clearing houses. “We’re really in unprecedented times,” he said.
But the indignation with Robinhood did not start this week. In 2018, Bloomberg disclosed that Robinhood was selling its order flow in advance to hedge funds like Citadel, which can profit from the practice in numerous ways. But the betrayal this week hit hard.
Before the ax fell, the main subject of inquiry in a frenzy of media was what was driving the mob of traders: Was it greed, boredom, or professional interest in investing? Much commentary settled on anger: In an age of profound unhappiness over what is widely regarded as a rigged system on every level, Robinhood and the other investment apps offered a vehicle to beat Wall Street at its own game. But today, when Robinhood saved the hedge fund guys and threw its users overboard, the fury boiled over.
The story has no absolute good guys: The hedge fund traders — paying little or no taxes, generally a waste of a good education — cried like babies when they were losing to whom they considered unworthy rivals. The investment apps betrayed their central ethos as soon as the heat was turned up. As for the little guys themselves, they were admittedly opportunistic and bloodthirsty. But of the three, the little guys deserve the only sympathy: Many of those GameStop traders on Robinhood were simply paying off their college loans.
Verdict: Sell
— Steve LeVine
⚡Lightning Round⚡
⚡Starbucks’ chief operating officer trades in frappes for pharmacists. On Tuesday, the Wall Street Journal reported that Starbucks’ COO Rosalind Brewer will take over as CEO of Walgreens on March 15. Not only will Brewer lead the pharmacy chain during the year-of-the-vaccine, but she’ll also become the only Black woman to lead a Fortune 500 company. And she’s helping to break the glass ceiling in more ways than one: There has been a wave of new women COOs over the past decade, but they’ve rarely ended up promoted to chief executive. Let’s hope this isn’t an exception to the rule. Buy.
⚡ Taboola hops aboard the SPAC train. On Monday, the long-maligned digital advertising and content recommendation company said it plans to go public by merging with ION Acquisition Corp, a special purpose acquisition company, or SPAC. Despite the anticipated decimation of digital advertising through the pandemic, Taboola actually saw its revenue rise through 2020. Taboola is just one of many companies — including DraftKings and Nikola — who’ve decided to skip the IPO and take the SPAC shortcut this past year. According to CNBC, digital publishers like BuzzFeed, Vox, and Vice are allegedly considering SPAC lifelines, as well. Hold.
⚡ Jack Ma resurfaces, but his company has been commandeered. Ant Group, the Chinese fintech company founded by billionaire Jack Ma, was slated to go public in November in what would have been the world’s biggest IPO. But after Ma made public comments critical of Chinese regulators, Xi Jinping personally intervened to stop the IPO. Speculation about Ma’s whereabouts began to swirl when he failed to make a scheduled TV appearance and wasn’t seen in public for months. Ma finally made a public appearance last week, quieting rumors that he’d been disappeared by the Chinese government, but the Wall Street Journal reported this week that his company Ant Group will now be restructured as a financial holding company overseen by China’s central bank, after which it could possibly try to IPO again. Sell.
⚡ PepsiCo teams up with Beyond Meat in its perennial plight to become healthy. Last November, the plant-based meat alternative startup Beyond Meat generated some buzz — and then some confusion — when it said it collaborated with McDonald’s to create a plant-based burger, only for McDonald’s to fail to acknowledge Beyond Meat as its supplier. Things are a little clearer in the recent collab between Beyond Meat and PepsiCo, who will be teaming up to create some plant-based snacks and drinks as yet another venture in the soda and snack giant’s years-long pivot toward healthier offerings. Just in case you were finding your Mountain Dew too meaty. Hold.
📈 The Number: $80,000
That’s the typical annual salary for an electric vehicle charging station technician according to The Mobilist, Steve LeVine’s new Medium blog covering batteries, electric cars, and driverless vehicles. (Hint: Follow the blog here!)
This type of reimagined technician is a newly developed profession, and ChargerHelp, an EV charging station servicing company, says it takes just a week of training to pick up the basics of the job. With electric vehicle adoption picking up momentum, charging stations will continue to proliferate; inevitably, that means routine problems at those stations will require a tech to resolve.
This has already emerged as a bit of a problem, The Mobilist reports, because emergency maintenance is currently often handled by electricians — who are pricey, overbooked, and often miscast when the problem turns out to be a software (not an electrical) issue. Thus ChargerHelp’s business, which has already trained 60 technicians to join this nascent category. Ultimately, says The Mobilist, “tens of thousands of charging station technicians could be required, hard evidence that at least one industry of the future is going to produce well-paying, middle-class jobs that do not require an engineering degree.” These days, we’ll take any good jobs news we can get.
— Rob Walker
📖 Marker Read of the Week: Why America is suddenly experiencing a plastic surgery and Botox bonanza — and why tech moguls keep trying to build utopian paradises.
🔎 Marker’s New Fixation 🔎
Like every other twentysomething living in a city, I am obligated to own several pieces of Ikea furniture. My Ikea bookcase — the ubiquitous white Billy — recently suffered a small break, and because I have no extra pegs on hand, I did what my forefathers before me have always done: I duct-taped it back together. Functional, but in the words of my partner, “so ugly.” For decades, those of us who possess no fixing skills greater than applying tape, glue, or bungee cords have resorted to either making due with awkwardly repaired Ikea furniture or, if the break can’t be mended with these implements, swallowing the pill and making the wasteful decision to buy a replacement. But for the first time ever, Ikea is taking steps to address this particular sustainability friction point: On Monday, the Financial Times reported that this year the Swedish furniture giant will roll out an online ordering system for spare parts. This initiative is part of a larger multiyear push by Ikea to drop its wasteful image and embrace sustainable practices like renting out furniture and using recycled wood, but it also perfectly fits the DIY mood of coronavirus shutdowns, where newly minted homebodies are discovering the value (and the fun) of taking the time to mend items, undertake home repairs, and hunt the sidewalks for thrown-out treasure. Even I may be moved to brave a repair that requires more than duct tape.
— Jean-Luc Bouchard, Senior Editor, Marker
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