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Robinhood IPO launch misses the mark
Robinhood’s IPO launches with a fizzle
Robinhood, the app that seeks to democratise finance, has had a bit of a disappointing opening after launching on the Nasdaq on Thursday.
Out of the gate, share performance has already stumbled.
Shares opened at $38 at the lower end of Robinhood’s speculated price. The top end of its launch target was $42. While this was in line with Wall Street expectations, what happened next wasn’t.
Shares immediately fell, falling as far as 12%, and closing out the US session 8.4% lower at $34.82. With this the trading app’s valuation dropped to $29bn after having briefly reached $32bn on Wednesday pre-trading.
Data from Dealogic suggests the average first-day jump for US IPOs in 2021 is 39%. Compared against that, Robinhood’s launch is a very damp squib.
Robinhood was still one of the most popular stocks for traders during its first full day. 100 million HOOD shares exchanged hands for a value of $3.7bn. This surpassed other tech stocks like Tesla and Apple in terms of exchanged share volume, possibly from traders keen to trade the dip.
Why the drop?
It appears that institutional interest around this latest tech stock launch isn’t as high as Robinhood had hoped.
This is possibly down to higher scrutiny around the way Robinhood app is structured. Regulators in particular have issues with how the app appears to run on gamification models, rather than standard trading app infrastructure. A lack of customer support features – a bit of a no-no for a brand that has lofty egalitarian aims – has also attracted regulators’ ire.
The thing that really gets regulators’ goat about Robinhood is its controversial practice of selling trades. Robinhood uses payment by order flow, the long and short of which essentially results in higher retail investment commissions.
The Financial Industry Regulatory Authority (FINRA) issued its largest-ever penalty against Robinhood in June, $70m, for “widespread and significant harm” to customers. Not great optics for a company on the verge of going public as Robinhood was at the time.
FINRA opened another investigation into the California-based firm on July 26th into whether co-founders Vlad Tenev and Baiju Bhatt had failed to register with the regulator following the publishing of an updated company prospectus.
Then there are sustainability issues. The vast majority of Robinhood’s 31 million users become investors during the Covid-19 pandemic. Many of its users are fairly new and naïve to the complexities of investing. Robinhood also became the platform of choice for those participating in the recent meme stocks surge.
Robinhood has been on an impressive growth journey because of this. The number of accounts on its platform has doubled since the start of 2021.
But is this really sustainable? Will its customers, which tend to be young and inexperienced, want to keep going once Covid-19 restrictions are lifted fully around the world? It’s this uncertainty that could have dampened the tech stock’s appeal.
We also have questions around voting rights. Normally one share = one vote. That’s standard practice a lot of the time. However, founders Bhatt and Tenev keep voting control over Robinhood via its dual-class structure. The pair enjoys 65% voting control – despite owning less than 20% of its company shares.
Robinhood customers were supposed to be allocated up to 35% of shares upon the IPO launch, but this now appears to be more about 20%.
Again, this isn’t particularly democratic for an app that seeks to bring financial trading to the masses.
Where next for Robinhood?
Even though it missed quite a large target, Robinhood still proved very popular with retail traders.
Price action seems inextricably linked with the FINRA investigation and public perception of the brand going forward. Customer retention will be key here too. We’ll be watching Robinhood with great interest going forward.
Earnings Season: Amazon’s $100bn quarter still misses expectations
Despite huge sales, Amazon shares took a knock after the ecommerce pioneer reported its Q2 earnings. Here’s why.
Amazon’s headline stats
It’s a third $100bn quarter in a row for Amazon, but its stock price wasn’t too ecstatic about these huge figures. AMZN stock fell 7% in extended trading on Thursday following the firm’s Q2 2021 earnings report.
Why? Despite clocking in at an eyewatering $113.08 billion, revenues still fell short of market estimates of $115.2bn.
Even with Q2 sales growing 27% year-on-year, this showed a slowdown in Amazon’s growth compared against the 41% year-on-year growth seen in Q2 2020.
Key takeaway stats from the Amazon earnings reports are:
- Earnings per share – $15.12 vs $12.30 estimated
- Revenue – $113.03bn vs $115.2bn
So good news on the EPS front, but still that sales drop off has caused investors to feel less optimistic regarding amazon.
The rise and rise in sales in 2020, and the rapid growth rates, is essentially all tied in with the pandemic. With shoppers essentially stuck at home, online retail boomed worldwide. With Amazon already the number one global retailer, it’s only natural that it benefited greatly from homebound consumers.
With economies opening up once more, and shoppers shifting their spending from products to experiences, like trips, leisure activities and dining, the sales drop isn’t so surprising.
Even so, Prime Day, Amazon’s showpiece sales event, took place in June this year. 250 million items were sold then – more than any other Prime Day to date.
New CEO Andy Lassy has taken the reins from founder and world’s richest man Jeff Bezos this quarter. Speaking to reporters, Lassy was quick to point out that Amazon Web Services (AWS) is on a strong growth footing, which may comfort investors.
In the quarter ending June, AWS sales totalled $14.8bn showing annualised growth of 37%. This particular sector outperformed Amazon’s wider retail business. It also outperformed its rate of expansion in Q2 2020, which was measured at 29%.
It was partly AWS’ success, alongside high profitability in the cloud-computing, subscriptions, and advertising segments, that helped earnings smash Wall Street expectations.
CFO Brian Olsvasky has said Amazon expects to record sales between $106bn and $112bn in quarter three. That would be growth of around 10-16%, compared against the same period in 2020.
Once again, this falls shorts of consensus estimates. Wall Street was predicting Q3 sales to accelerate further to reach $119.2bn.
Amazon’s FAANG contemporaries also believe their revenues will fall away from pandemic highs in 2021’s third quarter. Apple, for instance, has cited supply chain difficulties affecting its ability to sustain its high Q2 performance. Like Amazon, this led to a drop in its share price.
“Our customers are safe and healthy and ordering from us. And we know that there’ll be more vacations or be more mobility. They’ll be things that probably people shied away from last year and that’s all good,” Olsavsky said. “But it does tend to lead them to do other things besides shop. So, we’re just adjusting our run rates in the period that we see that happening.”
To see which large caps are still due to report on Wall Street this season, make sure you check out our earnings calendar.
Earnings season: Facebook beats Wall Street but signals slowing growth
Mark Zuckerberg’s social media behemoth enjoys a very strong record, but headwinds may blow strong across the rest of the year.
Facebook’s headline stats
Facebook posts its fastest-growing quarter since 2016 with revenues expanding 56% in the quarter ending June 2021.
According to its results, Facebook notched up a 47% rise in its average price per ad. It also increased the volume of ads it delivered by 6% year-on-year.
That’s quite an interesting dichotomy. While revenues generated from its ad service is up massively, the number of ads delivered hasn’t kept pace. This may feed into problems down the line. It could also ultimately show how much more Facebook is currently charging for ad space.
Monthly average users (MAUs) also grew. Now, approximately 2.9 billion customers regularly use the social media network each month. Daily active users (DAUs) total 1.91bn, in line with Facebook expectations.
Across its multiple apps, which includes Messenger, WhatsApp and Instagram, Facebook’s total users clocked in at 3.51bn for the quarter – up from the 3.45bn registered in Q1.
Let’s have a look at the overall breakdown of Facebook’s Q2 2021 numbers:
- Earnings – $3.61 per share vs. $3.03 analyst estimates
- Revenue – $29.08 billion vs. $27.89 billion analyst estimates
- DAUs – 1.91 billion vs. 1.91 billion analyst estimates
- MAUs – 2.90 billion vs. 2.91 billion analyst estimates
- Average revenue per user (ARPU): $10.12, vs. $9.66 analyst estimates
Of course, ad revenues are Facebook’s chief cash generator, but it also has a variety of other products which bring in cash. Its “Other” segment covers commercial hardware, including Oculus Rift VR headsets. Revenues generated from this sector of Facebook’s business fell below the expected $685.5m at $497m.
Free cash flow also dropped. Estimates suggested it would total $9.08bn for this quarter. In reality, the figure was $8.51bn.
Regarding its 2021 H2 performance, Facebook said it expects “year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth.”
This is essentially unchanged from the guidance issued at the end of Q1.
A lot of Facebook’s future direction comes from what CEO Mark Zuckerberg calls the “metaverse”.
Zuckerberg describes this as “a virtual environment where you can be present with people in digital spaces.”
How this differs from the current experience is really yet to be seen. A new team has been formed at Facebook HQ to develop this vision into a tangible reality. Zuckerberg is certainly optimistic.
“In the coming years, I expect people will transition from seeing us primarily as a social-media company to seeing us as a metaverse company,” he said.
Advertising will probably still play a key role here, but Facebook may continue to develop its VR capabilities in order to pull off this project.
The key thing the markets took away from Facebook’s call with analysts and journalists was a slump in revenue growth. Facebook share prices fell 5% after the company’s guidance announcement, showing slowing revenues will be a thorny issue for investors moving forward.
This mirrors other tech giants like Tesla and Apple who experienced similar share price dips after reporting this quarter’s earnings, albeit for different reasons.
The social media giant said ad headwinds are most likely to going to blow strongly throughout the rest of 2021. Regulatory and platform changes were cited, as well as Apple’s iOS 14.5 update, which allows users more flexibility in how apps track their activity.
Rivals Snap and Twitter have seemingly managed to navigate their way through the iOS changes. It’s now up to Facebook to do the same.
Then there is government scrutiny and lawsuits against Facebook. A recent antitrust complaint from the Federal Trade Commission was dismissed by judges, alongside a separate complaint, filed by 48 states attorneys. The FTC, however, is determined to fight this and give Facebook another day in court. It has until August 19th to alter its complaint.
President Biden is apparently no fan of Facebook either. The sitting president has stated that Facebook is not doing enough to combat the spread of misinformation on its platforms, even going so far as to say, “they’re killing people”.
What does the market think about Facebook?
Despite the 5% post-report drop in pre-US market trading Facebook shares experienced on Wednesday, 2021 remains a strong year for price action.
Facebook shares are up 37% since January, beating the S&P 500’s 17% rise in the same period.
Analyst consensus is a strong buy:
News sentiment is also bullish, placing Facebook higher than the sector average:
So, a strong quarter for Facebook. What’s next? Challenges will likely intensify, but the onus is now on Zuckerberg et al to stick to their forecasts and keep things in line with market expectations as the year progresses.
To see which large caps are still due to report on Wall Street this season, make sure you check out our earnings calendar.
Earnings season: Another record-breaking quarter for Apple
Apple smashes yet another quarterly earnings season – but the stock price takes a hit.
Apple’s headline stats
Apple beats Wall Street expectations once again. This was its strongest June quarter report on record, with sales of all major Apple product lines up 12% across the board.
Overall revenues were up 36% year-on-year for a total of $81.41 billion. When broken into key categories, Apple’s latest quarterly revenues look something like this:
- Total Revenue – $81.41 billion – 36% y-o-y growth
- iPhone revenue – $39.57 billion – 49.78% y-o-y growth
- Services revenue – $17.48 billion – 33% y-o-y growth
- Other Products revenue – $8.76 billion – 40% y-o-y growth
- Mac revenue – $8.24 billion – 16% y-o-y growth
- iPad revenue – $7.37 billion – 12% y-o-y growth
- Gross margin – 43.3% y-o-y growth
It’s of course iPhones that represent the largest chunk of Apple’s quarterly revenues. The California brand launched its latest iteration in October last year. Since then, it’s place as the centrepiece in the Apple crown has gone undisputed.
As we can see from the above, other Apple products, including Macs and iPads, also remain extremely popular with consumers.
“Our record June quarter operating performance included new revenue records in each of our geographic segments, double-digit growth in each of our product categories, and a new all-time high for our installed base of active devices,” said Luca Maestri, Apple’s CFO, in a statement released on Tuesday.
“We generated $21 billion of operating cash flow, returned nearly $29 billion to our shareholders during the quarter, and continued to make significant investments across our business to support our long-term growth plans.”
In terms of guidance, Maestri said the company is forecasting double-digit year-on-year growth into the next quarter, although this is expected to slow in September.
Apple stock still takes a knock
Despite these huge gains, Apple shares reacted poorly to Maestri’s September forecasts. The stock fell 2% after the announcement and is currently trading down roughly 0.7%.
This comes even after earnings per share rose from the estimated $1.01 to $1.30.
So, why the dip? It’s the same thing that affected Tesla this year, and indeed most tech companies involved in physical hardware: supply side issues.
There is currently a global chip shortage. A shortage of silicon used to manufacturer chipsets necessary for building Apple products has caused supply and manufacturing issues. The most affect products were Macs and iPads, which use “legacy nodes”, i.e., older chip models, unlike the iPhone which runs on more current chipsets.
“We had predicted the shortages to total $3 to $4 billion,” Apple CEO Tim Cook told CNBC. “But we were actually able to mitigate some of that, and we came in at the lower than the low end part of that range.”
The drop in Apple share price may then have been caused by consternation around the coming quarters’ performance until the end of 2021. Will supply shortages stymie growth? Likely so, but Apple has proven it can mitigate these and still come out on top. However, it’s how much growth slows across the rest of the year, if it does, that may have caused concern for investors.
Apple analyst sentiment
Even with stock down, sentiment appears to be fairly strong. According to the Analyst consensus tool on the Marketsx platform, Apple holds a buy rating according to 25 market observers’ opinions:
Sentiment is also veering towards the bullish:
So, another massive quarter for the world’s foremost tech brand. Now, it’s up to Cook, Maestri and the rest of the team to navigate Apple through a world where commodities and raw materials are in short supply. Can it deliver? Watch this space.
To see which large caps are still due to report on Wall Street this season, make sure you check out our earnings calendar.
Earnings season: Tesla steps on the gas with earnings beat
Tesla once again posts strong quarterly earnings figures and clears some major milestones.
Tesla’s headline stats
Released yesterday after US market close, Tesla’s Q2 2021 earnings beat Wall Street expectations.
The world’s foremost electric fortunes surged this quarter. Net income for 2021’s second quarter reached $1.14bn – surpassing the $1bn mark in a quarter for the first time. It’s also a ten-fold increase against Q2 2020’s net income levels.
Revenues generated from Tesla’s core automotive business clocked in at $10.21bn. Total revenues reached $11.96bn – nearly double the $6.04bn registered a year ago.
The company broke its previous vehicle delivery records too. Deliveries, a metric akin to sales when gauging Tesla’s success, amounted to 201,250 in the quarter ending June 30th 2021.
Production volumes stood at 206,421.
While the vast bulk of its revenue stream came from vehicle sales and associated services, Telsa also made money selling its government-sourced regulatory credits.
Regulatory credits are awarded to manufacturers as an incentive to develop electric vehicles. As Tesla only manufactures EVs, it gets these for free, which it then can sell on for a massive profit to other marques that have yet to meet regulatory requirements.
Sales of regulatory credits contributed 3.5% of revenues, equating to $354m.
Servicing looks like it is becoming a major money spinner for Tesla. With more vehicles on the roads, some 121% year-on-year, Tesla has boosted its service offer. It now operates 598 stores and service centres worldwide. According to its latest reports, service and maintenance generated $951 million this quarter.
One aspect where Tesla took a hit was its Bitcoin holdings. You may recall, the automaker caused consternation earlier in the year, when it snapped up $1.5bn in BTC tokens in March. Questions were raised around the validity of this strategy: is Tesla an auto manufacturer or a crypto trader?
CEO Elon Musk is famous for his enthusiasm for cryptocurrencies. However, he and his company were instrumental in instigating one of BTC’s famous price wobbles. First Tesla announced they were going to accept Bitcoin as payment for its vehicles in May. A week later, the company reneged on this, citing environmental concerns.
A $23m impairment on the value of Tesla’s BTC holdings was noted in this quarter’s report. This was filed under a “restructuring and other” operating expense.
Tesla’s post-earnings share action
Tesla shares rose 2% in after-hours trading following the earnings release.
As of Tuesday, pre-UK lunchtime, Tesla was trading for around $648 per share.
EPS beat Wall Street estimates. Forecast at $0.98, real earnings-per-share was valued at $1.45.
Upon this Street-beating report, sentiment on Tesla is naturally very positive.
Analyst recommendations rate Tesla as a “buy”.
Where next for Tesla?
Despite having a bumper Q2, there still remains lots of challenges for the brand.
The largest is the global shortage of chips necessary for EV production. Volume production will be limited, Musk said on a call with investors yesterday, depending on whether supply shortages can be overcome.
This year, Tesla is aiming to boost deliveries by 50%.
Despite market suggestions, Musk dismissed ideas of Tesla setting up its own chip hub. „That would take us, even moving like lightning, 12 to 18 months,“ he said.
Tesla claims it is on track towards building its first Model Y models in new facotires based in Berlin, Germany and Austin, Texas. Model Y cars should start rolling off production lines in these locations by the end of 2021.
However, the launch of its commercial semi-truck programme has been delayed. This is again due to supply chain snags, specifically the availability of battery cells.
No indication was given by Tesla as to when it will start production of its futuristic Cybertruck pick up platform.
Essentially, the next months will rely on the global chip status. Rising input costs in US and European plants, caused by rising worldwide commodities prices, may put the brakes on rapid expansion as the year progresses.
Vaccination shares: GSK vs Moderna
Moderna and GlaxoSmithKline represent two interesting paths pharmaceutical stocks have taken this year. We examine the GSK share price and Moderna shares to see which has come out on top – and what the future holds for both.
GSK shares & Moderna
Examining the GSK price
GlaxoSmithKline’s fortunes in 2021 have been up and down. While competitors like Pfizer and AstraZeneca have enjoyed major share price growth across the pandemic, GSK stock hasn’t been so reactive.
At the time of writing, the GSK share price is around £14.35. Before the pandemic, GlaxoSmithKline shares had peaked at £18.42 in January 2020. Since then, it’s been a tale of ups and downs. Shares fell to a new low in February 2021, but as we can see from the current price, progress has been made since then.
News came in June from CEO Emma Walmsley that GlaxoSmithKline is currently in the progress of separating its core pharmaceuticals business from its consumer goods side. New GSK, taking over pharmaceuticals, and the spin off, which will be listed on the London Stock Exchange, will remain linked with New GSK taking a 13.6% share of the new entity.
The whole plan could put GSK share price back on a growth footing. After the separation, New GSK is aiming at annual sales growth of over 5% between 2021-2026. Underlying profit growth is targeted at 10% in the same period, hoping to generate £33bn in sales by 2031.
That’s the mid-to-long term outlook. One thing that may put off investors is the GSK’s updated dividend payment scheme. The company has stated it will pay shareholders a dividend of 55p per share in its new form – down from the 80p investors used to enjoy.
Shares rose 2.8% after the demerger plans were announced at the tail end of June. The plan is ambitious, but some analysts believe this may not be enough to support GSK share prices in the long run. Questions over CEO Walmsley and her senior team are being raised as, under Walmsley’s tenure, GSK has struggled to take off compared with some of its competitors.
What about Moderna shares?
Moderna shares, on the other hand, are having a much better 2021 than GSK’s.
Share prices have risen 125% across the first six months of the year. Moderna’s mRNA-1273 vaccine is one of the most widely distributed inoculants used to combat the Covid-19 virus.
Moderna is nearing an $100bn market capitalisation. Its product revenue has grown from virtually nil at the start of the pandemic to around $1.7bn – purely driven by vaccine sales. Given the company is just 11 years old, Moderna can be considered one of the biggest beneficiaries of the Covid-19 pandemic.
Moderna shares are currently trading at $246.66 – up 4.8% in daily trading as of 15th July 2021.
While this is all amazing in the short term, what about the longer view? Moderna product-generated revenues were small to low at the beginning of the pandemic. While it was able to create a product in huge demand quickly and effectively, there are concerns that revenue growth, flagged at a $21bn top end for 2021, could not be sustainable.
However, Moderna’s executives are hopeful its technologies and research can help provide solutions for other diseases in the future. The company is looking to leverage its Covid expertise into other respiratory disease vaccines such as Respiratory syncytial virus (RSV) and cytomegalovirus (CMV).
Betting on other pandemics, however, is possibly not a smart bet. While Moderna is pushing ahead with trials on some vaccinations that could prove effective should we see other wide-scale breakouts, a lot of its experimental products are still in the early stage.
Comparing Moderna shares & GSK
What can we glean from the above?
A couple of things. Moderna’s ability to capitalise quickly on the Covid-19 situation, helped by emergency authorisation of its vaccine, has led to huge yearly and 6-month gains. The company is close to reaching a new all-time high market cap and will probably remain so.
It’s during the transition out of the pandemic and if Moderna can swing into sustainable revenue generation from its product side to bolster regular operations that will be really telling here.
Switching to GSK, it has come out with a fairly radical plan of action. It has set itself goals that, while ambitious, are fairly achievable for the company’s size and scope. Crucially, in the long term, GlaxoSmithKline doesn’t seem as tied in with the pandemic and its progression as Moderna.
If you are looking into trading or investing in Moderna or GSK stock, then be aware of the current market conditions, share price, and other variables. Only invest if you can potentially afford to take any losses as trading and investing both present risk of capital loss.
Is the ASOS share price on the rise?
Online fashion retailer ASOS is a familiar name to pretty much all UK fashionistas – but what about traders and investors? Does the ASOS share price make it one of the season’s hottest items?
Is ASOS one of the top fashion stocks?
ASOS is an online fashion retailer. Featuring a mixture of own-brand and branded items, ASOS has been a major player in the e-commerce world across the last decade. It appears its growth story is nowhere near finished.
Over the past five years, revenues have grown at a compound rate of 23.4%. Further growth is expected, particularly in the Covid economy which has so far favoured online retailers.
FY 2021 revenue growth is forecast at 23% according to city analysts. 2022 revenues will not expand at quite the same rate but are still estimated to rise by a comfortable 18%.
ASOS holds impressive business fundamentals backed up by a strong customer base and desirable products.
For instance, in its H1 2020/2021 results posted in April of this year, the company moved from a net debt of £163m to a cash surplus of £92m.
Such strong fundamentals are important to gauge when picking stocks and will also have an affect on the ASOS share price.
A look at the ASOS share price
At the start of the year, the ASOS share price had risen 23%. According to the one-year change indicator in the Markets.com Marketsx platform, ASOS shares are up 59% as of July 8th, 2021.
There is a couple of factors at play that are helping ASOS into one of if not the hottest fashion stocks on the FTSE Alternative Instrument Market (AIM). The AIM lists UK firms considered outside of the large caps – although ASOS’ current market capitalisation stands at a cool $5.3bn.
Firstly, there is the overall sales growth. According to its interim results reported in April, ASOS showed a 24% increase in UK sales, and a further 15% in international sales growth. The fashion retailer has also built up a considerable customer base. Its interim financial report states 24.9m customers shop at ASOS regularly – an increase of 1.5m against 2019/2020’s numbers.
Because it is only an e-commerce site, the pandemic has been greatly beneficial to ASOS, and thus to its share price. First half profits soared 275%. For many shoppers, they had no choice but to shop online. Many high street rivals, including Topshop/Topman owners the Arcadia Group and Gap have all taken massive hits too. Bricks and mortar operations have shut, which plays into ASOS’ hands.
Speaking of Arcadia Group, the ASOS share price was boosted in February when the online retailer acquired the Topshop, Topman, Miss Selfridge, and HIIT brands from Peter Green’s collapsed retail empire.
The acquisition is expected to drive “double-digit return on capital” for ASOS once fully integrated and promoted. ASOS spent £275m to acquire the brands in February 2021.
But any further ASOS share news must be tempered by re-opening trends. The UK high street is enjoying a post-lockdown renaissance. ASOS has no physical presence, although it may be able to turn Topshop’s flagship Oxford Street store in London into its first physical location.
Even son, ASOS is confident it can keep its momentum growing and believes online fast fashion retail will remain consumers’ preferred choice. But the re-opening of British high streets suggests competition can return to pre-pandemic levels.
This may still be unlikely, as physical retail was declining prior to the Covid-19-induced shuttering of shops in 2020, but it is worth watching if you’re planning on investing or trading ASOS.
There is also a caveat to share price performance. While the ASOS share price was up at the start of the year, and is up significantly year-on-year, the price has fallen away from its 2021 highs as of July.
Shares are currently trading at around £49.15 – below the February high of £59.18.
Part of the reason for this is what we slightly touched on above: economic uncertainty. While ASOS has been a pandemic growth success, we don’t know what the future might hold. Its core consumer base – fashion-loving 20-somethings – are facing tough times economically, even as lockdown eases.
ASOS has subsequently kept its forecasts for the full 2021 year in line with normal expectations, rather than another bumper first half.
There is also competition in the online space. BooHoo, also an AIM fashion stock, has seen its share price rise 3.25% month-on-month between June and July 2021. According to its Q1 2021 results, BooHoo has grown its customer base by 18% to 18 million – closing the gap on ASOS. Revenues also increased by 41%.
Risks of trading ASOS & fashion stocks
Research into fashion stock fundamentals, as well as the more technical aspects of stock price action, is very important. Read our guide on how to pick stocks for more information.
When considering the ASOS share price, also consider that investing and trading carries inherent risk of capital loss. Only invest or trade if you can afford any potential losses. Always do your due diligence before investing or trading.
Robinhood files for IPO: Just PFOF
- Regulatory scrutiny may present risk to business model
- Mega growth in active clients
- Crypto a growing part of the business
US online trading company Robinhood has finally filed for its long-awaited public listing in what’s sure to be one of the most closely watched IPOs of recent years. The company, which enjoyed rapid growth last year but has been at the centre of a storm over trading outages and restricting access to trades earlier this year when capital limits were reached, is seeking a valuation of around $40bn. The stock is set to list on the Nasdaq under the ticker HOOD.
The S1 prospectus dropped just a day after FINRA issued Robinhood with a $70m for “widespread and significant harm” to its customers. The investigation remains ongoing and Robinhood expects more penalties. There are numerous other cases, including class action suits relating to Robinhood restricting access to trading on a number of very volatile stocks at the height of the GameStop frenzy. As I commented on back in January when all this was taking place, I didn’t think Robinhood wanted to stop trading – it was just a question of regulatory capital requirements and Value at Risk models that left the clearing house demanding more cash up front.
Since having to secure $3.5bn from investors PDQ, Robinhood has strengthened the balance sheet considerably and now has about $4.8bn in cash or cash equivalents, plus it has a new $2.2bn revolving credit facility for financing margin trading in the event of another volatile episode.
“Our vision is for Robinhood to become the most trusted, lowest-cost, and most culturally relevant money app worldwide,” the company said in the SEC filing document. Part of this has involved offering questionable products (like stock options) to relatively unsophisticated traders. (Although the GameStop frenzy proved the Reddit crowd could be very sophisticated indeed, ganging together to concentrate out of the money calls where dealers couldn’t hedge on stocks with lots of short interest, the concentrated buying of the physical to squeeze shorts and create a gamma squeeze on the dealers). The tragic suicide of one customer
Robinhood has ridden – and in many ways helped fuel – a boom in retail trading in recent years, particularly since the pandemic hit. Retail investing now comprises roughly 20% of US equity trading volume, doubling in the decade from 2010 to 2020. “Yet, we believe there is still significant room for growth,” the company asserts. Meme stocks are a big part of the business and I think this presents a risk, albeit Robinhood itself could benefit from becoming the next big meme stock itself – a lot depends on how much reputational damage it suffered this year and how much good faith it retains among the retail crowd. The fact that it is reserving as much as 35% of the shares at IPO for its retail clients could be a master stroke.
For the year ended December 31, 2020, total revenue grew 245% to $959 million, up from $278 million in 2019. But it’s still not exactly profitable, recording net income of $7 million, compared to a net loss of $107 million in the prior year. Adjusted EBITDA rose to $155 million, compared to negative $74 million.
Fuelled by the meme stock craze, the first three months of 2021 saw total revenue grow 309% to $522 million, up from $128 million in the same period of 2020. However it recorded a net loss of $1.4bn in the quarter due to a $1.5 billion fair value adjustment to its convertible notes and warrant liability.
Incredibly, Robinhood has doubled the number of users since the start of the year, with 31m accounts. Of these, 18m are funded, representing a 151% increase from last year. Fundraising in 2020 indicated a market valuation of around $11bn, but the rapid growth in active accounts and revenues this year has seemingly propelled the company to seek a much larger valuation.
Payment for order flow
Robinhood came under fire in the first quarter of 2021 as meme stock craze exploded. Among the many charges levelled against the platform was the practice of paying for order flow. Robinhood sells market makers like Citadel client trades, who will execute at or better than the current market price. This is what enables commission free trading but has come under scrutiny as could represent a conflict of interest. Nevertheless, Robinhood made 75% of its revenues last year – some $720m – from selling client trades. Of this, about half comes from Citadel Securities (34% of total revenues).
This is perhaps the biggest risk for investors: the SEC has already fined Robinhood $65m for misleading customers over PFOF, as it is called. And chief Gary Gensler has ordered a review of the practice, as well as the ‘gamification’ of investing through apps and incentives. This would tend to put Robinhood in the crosshairs of the SEC just as the former seeks to go public and the latter is likely to get stricter. Timing appears problematic for Robinhood.
If the US regulator were to act on PFOF it could hit the very business model that Robinhood has relied on to secure growth so far. “Because a majority of our revenue is transaction-based, including payment for order flow … reduced spreads in securities pricing, reduced levels of trading activity generally, changes in our business relationships with market makers and any new regulation of, or any bans on, PFOF and similar practices may result in reduced profitability, increased compliance costs and expanded potential for negative publicity,” the filing states (my emphasis).
Crypto trading: blame Elon
Robinhood specialises in stocks and stock options, but cryptocurrency trading is a growing part of the business. From just 4% last year, crypto accounted for 17% of revenues in Q1 2021.
Robinhood notes that 34% of its cryptocurrency transaction-based revenue was attributable to transactions in Dogecoin, as compared to 4% for the three months ended December 31, 2020. For a token set up as a joke, that’s a staggering amount – roughly 5% of all Robinhood revenues in the first quarter of the year.
“A substantial portion of the recent growth in our net revenues earned from cryptocurrency transactions is attributable to transactions in Dogecoin. If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected,” the S1 states.
I tend to think there is always another Dogecoin round the corner. Robinhood currently supports 7 cryptocurrencies on its platform. That compares with 25 at Markets.com.
Regulatory headwinds appear strong, particularly regarding PFOF, which should see the shares trade at a discount. Crypto is also clearly an area that presents a high level of regulatory uncertainty as well as unreliable flow and trading activity. Reputational risk is also a big factor post-GameStop and in a highly commoditized industry, it’s hard to see where it can really deliver much in the way of margin growth. The business is still not really profitable and the valuation of $40bn+ looks well above peers, even assuming growth continues apace this year.
UK investing: Sectors to watch
While the pandemic has by no means ended, there is hope that the UK economy will reopen fully in the second half of 2021. With that in mind, here are some sectors that have been eyeballed as holding great growth potential from a UK investing standpoint.
Sectors to watch for UK investing strategies
The ins and outs of international travel are still being straightened out, but the airline industry and its related infrastructure and suppliers may be about to take to the skies. Of course, this all depends on not just internal policy, but the willingness of other countries to accept tourists, but with travel restrictions loosening, there is high potential in airline stocks.
In terms of what this means for investors, we can use EasyJet as a case study. The orange discount airline has, like many, had a turbulent time in 2020 and into 2021. However, the stock has provided absolute returns of 22.6% over the past year. The Marketsx in-platform trader trends tool has EasyJet on a 96.9% bullish rating.
Stocks like Rolls-Royce, one of the airline industry’s key engine suppliers, are also stocks to watch. It currently holds a 99.3% bullish rating on the Marketsx trends tool.
Over $122bn was invested into green energy projects in the UK between 2010-2019. More funding is on the way. The world’s largest offshore windfarm is currently under construction in Dogger Bank off the east coast. Some £12bn has been pledged by the UK government for future renewable projects, but PricewaterhouseCoopers forecasts the government’s 10 point “green energy revolution” plan may cost upwards of £400bn to implement.
A lot of capital is being poured into clean power generation. Wind is a priority, but so is solar energy, tidal and other forms of renewable energy.
As well as owning stocks in the likes of SSE, which has committed to triple its green energy output by 2030, investors may look into various funds centred on renewables. For example, the NextEnergy Solar Fund offers a dividend yield of 6.5%, while the Gore Street Energy Fund offers a yield of around 6.7%.
Oil & gas
While the future is green, don’t be too quick to write off oil & gas stocks when looking into UK investing and trading strategies. Oil prices are currently trending at some of their highest levels for years. Demand for oil is forecast to soar in the second half of 2021 as the world navigates out of the Covid-19 pandemic.
With that in mind, oil & gas still has potential for investors. Take BP as an example. Goldman Sachs recently identified the stock as one a potential reopening winner with post-pandemic upsides of a huge 45%.
Many supermajors are also looking to futureproof themselves with business investment in renewables and attempting to clean up their act. Look at BP. It has 23 GW of clean power projects in the pipeline and has committed to net-zero carbon emissions by 2050, so may morph over time from oil & gas stock to renewable stock. Certainly, one to watch with interest.
Hospitality includes live entertainment, pubs, clubs, restaurants and so on. Naturally, due to lockdown, the sector has suffered over the course of the pandemic. But there is light at the end of the tunnel. Pubs and restaurants are now offering seated service inside in addition to al fresco options. There have even been some pilot schemes for live events, not least the 10,000-strong Download music festival.
With the reopening of the UK economy, although the lifting of full restrictions has been pushed back to July, hospitality stocks could be poised to boom.
For instance, the Wetherspoons share price gained 45% in the run up to April’s relaxation of dining restrictions. Other pub stocks, like Martson’s have made even greater strides. In Marston’s case, it had made 106% in the six months up to May 2021.
With the Delta variant spreading, however, the UK may be forced back into lockdowns. So, while hospitality stocks have potential, proceed with caution, although that goes without saying when pursuing UK investing.
Risks of UK investing
Whether pursuing business investment, retail trading, or other activities, UK investing comes with risks inherent to all forms of financial speculation. All such activity comes with the risk of capital loss. Always be sure to do your research prior to committing any money and only do so if you are comfortable taking any potential losses.
Didi Global: When is the IPO and where can I trade it?
Didi Global, China’s rival to Uber, is looking to raise $4 billion in what could be one of the biggest IPOs in years. Books were covered on the first day of the build, meaning the company comes with an estimated valuation of $62 billion to $67 billion. That would place its market capitalisation some way behind Uber’s $95bn but well ahead of rival Lyft’s roughly $19bn valuation.
The company is offering 288 million American depositary receipts (ADRs) at $13 to $14 each, with a midpoint implying it would raise $3.9bn, making the second-biggest IPO this year behind Coupang Inc. Pricing is due to be finalised Tuesday/Wednesday this week with the stock beginning trade on Jun 30th. The company will list on the New York Stock Exchange under the ticker symbol DIDI.
Didi boasted in SEC filing that it operates in 16 countries and revenues of $6.4 billion for the three months ended March 31, 2021, with net income turning positive at $800m. Rather like Uber and Lyft it has not been profitable before then, racking up $1bn+ losses in each of the last three years.
Uber sold its China business to Didi in 2017 for $7bn and retains a 12% stake in the company after the IPO. The largest shareholder is SoftBank Group, which owns 21.5% ahead of the IPO.