Online brokerage Robinhood priced its initial public offering at $38 each, at the low end of its $38 to $42 price range. While that most likely reflects softer demand, there is some suggestion the company favors leaning lower to boost the chances of a first-day bounce.
As the company has set aside up to 35% of the IPO for its own customers, the price may reflect retail investors’ own doubts. One reason behind that could be the valuation—$32 billion for a free stock trading app seems high, even if Robinhood’s growth has been nothing short of remarkable. That valuation looks demanding in light of regulatory risks. The Securities and Exchange Commission is reviewing what’s called payment for order flow, a practice which accounted for roughly 80% of Robinhood’s revenue in the first quarter. On the other hand a positive outcome of the review could change the picture.
The timing of its debut is another factor. At the height of the GameStop and meme-stock frenzy things may have been different. Robinhood’s growth is slowing—the company itself expects third-quarter revenue to decline. To make matters worse, retail investors aren’t exactly enamored with Robinhood, whose moves to temporarily limit trading in GameStop and AMC in January have not been forgotten.
Throwing the IPO open to its own customers could increase the volatility of its stock, Robinhood concedes. Whatever happens, it’s unlikely to be dull.
—Callum Keown
*** Stay on top of the tech trade with a daily rundown of top-performing tech stocks and the big names making news. Sign up for the Tech Report newsletter by Investor’s Business Daily here.
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China Soothes Investors’ Nerves, Didi Soars on Reports It Could Go Private
One of China’s top regulators said the world’s second-largest economy was not looking to decouple from capital markets after a regulatory crackdown caused intense volatility in stocks, The Wall Street Journal reported. The message comes as a Chinese tech giant considers going private and after major investors pulled out of the country.
- The vice-chair of China’s securities regulator met with representatives from investment banking giants Goldman Sachs and UBS, and others, on Wednesday, according to the report. Fang Xinghai’s message: recent pressure was focused on specific problems in select sectors, and that Beijing will consider market impacts before introducing future policies.
- China’s message comes after regulatory scrutiny on sectors including technology, finance, and private education in the past week caused a massive selloff. Hong Kong’s Hang Seng Index saw its steepest dive since the Covid-19 pandemic rocked financial markets in March 2020. Stocks began to stage a recovery on Thursday, with the Hang Seng rising 3.3% as Chinese tech giants notched near 10% gains.
- But the recent overture may not be enough for Didi, the ride-hailing group that saw its stock price go into freefall after it got on the wrong side of regulators. Didi is considering going private to placate authorities in China and compensate investors, the Journal reported. Didi shares soared more than 30% in New York premarket trading.
What’s Next: While many investors will be reassured by the signal of stability, for some it could be too little too late—Cathie Wood’s ARK Innovation ETF sold nearly all its Chinese stocks. For Didi shareholders, a move to go private may be a welcome act of mercy as sentiment on Chinese investments remains uncertain.
—Jack Denton
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Senators Agree to Move Forward on Infrastructure Package
A bipartisan senators group agreed to begin consideration of a roughly $1 trillion infrastructure package, ironing out major issues hours before the Senate voted 67-32 to move forward on the deal Wednesday evening.
- The agreement includes $110 billion for roads, bridges and major projects, $66 billion for passenger rail including Amtrak, $11 billion in transportation safety programs, and $7.5 billion for electric-vehicle charging stations.
- The deal includes $39 billion to repair and upgrade aging infrastructure, modernize bus and rail fleets with zero-emission vehicles, make stations accessible to all users, and expand and continue transit programs for five years.
- Alongside the infrastructure bill is a broader, $3.5 trillion healthcare, antipoverty and climate-change plan that Democrats hope to advance along party lines through budget reconciliation. That legislation is expected to include tax increases on corporations and high-income households.
- President Joe Biden on Wednesday announced plans to increase the federal government’s purchases of American-made goods, raise the required percentage of their U.S.-made components to 75%, and manufacture more critical components like semiconductor chips in America.
What’s Next: House Speaker Nancy Pelosi (D., Calif.) said she would not commit to passing the infrastructure spending bill until the House of Representatives has reviewed it. She also wants the Senate to pass the reconciliation package first. “We are rooting for it. We are hoping for the best,” she said.
—Janet H. Cho
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Google, Facebook Join Growing List of Employers Adding Mandates Over Covid
Google and Facebook will require vaccinations of employees who want to work at their U.S. offices, joining more employers adding mandates after public health officials raised alarms about the fast-spreading Delta variant of the coronavirus that causes Covid-19, and advised even vaccinated people to wear masks indoors.
- Google CEO Sundar Pichai told workers in a note Wednesday it will expand vaccine requirements to offices in other countries in coming months. Alphabet -owned Google is also delaying its U.S. office reopening until mid-October.
- Facebook’s Lori Goler, a vice president of people, told The Wall Street Journal the company has a process for working with those who choose not to receive a vaccine for medical or other reasons. The social media giant will “be evaluating our approach in other regions as the situation evolves.”
- New York state is requiring all state employees, including healthcare workers at state hospitals, to be vaccinated or get tested regularly beginning Labor Day. New York City is offering $100 to people who come forward to get their first shots.
- Apple will require shoppers and employees in most of its 270 U.S. retail stores and at its corporate offices to wear masks starting Thursday, regardless of vaccine status, citing rising Covid cases, new local mandates, and updated guidance from the Centers for Disease Control and Prevention.
What’s Next: Biden is expected to announce Thursday that civilian federal workers must be vaccinated or submit to testing and other restrictions, after similar announcements affecting public employees of New York City and California state. Biden will also announce new plans for boosting vaccinations.
—Janet H. Cho
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Fed Day Reveals Progress, But It’s Too Soon for Tap
The Federal Reserve didn’t change short-term interest rates or announce it was cutting back on bond buying, but it did say the U.S. economy “continued to strengthen,” making progress toward its goals but not quite there.
- Fed Chair Jerome Powell told reporters at a virtual press conference “we won’t have an extended period of high inflation,” something Fed officials have insisted on for months despite evidence of rising prices.
- Powell defined this “transitory” pressure as “something that doesn’t leave a permanent mark on inflation.” Companies may not reverse their price increases, he explained, but they’ll stop raising them at some point.
- The policy statement and Powell’s remarks to reporters seemed to play down concerns about any economic fallout from the spread of the Delta variant, saying consumers and businesses have “learned to live with” the virus.
- Fed officials continued their deliberations Tuesday and Wednesday about when to begin tapering their asset purchases. Powell said they want to see more hiring before pulling back, but “there’s a range of views” on the timing.
What’s Next: The Fed will measure ongoing progress at coming meetings, which means an announcement about bond tapering could come before the end of the year. The central bank’s next policy meetings are to be held Sept. 21 to 22 and Nov. 2 to 3.
—Liz Moyer
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Facebook Reports Sharp Growth in the Quarter
Facebook continued the run of stellar earnings from big tech companies. But slowing growth expectations may have spooked investors. Shares were down 3.4% in after-hours trading.
- The social media company reported second-quarter net income of $10.4 billion, or $3.61 a share, up from $1.80 a share a year ago. Sales of $29.1 billion jumped 56% year-over-year.
- CEO Mark Zuckerberg said in the earnings call that 3.5 billion people actively use one or more of the company’s services. “I’m excited about our product road maps ahead,” he added.
- On the flip side, finance chief David Wehner warned the company expects year-over-year revenue growth to slow significantly through the end of the year, since the company’s second half of 2020 grew quickly as the digital ad industry recovered from Covid-related slowdowns.
What’s Next: Amazon.com wraps things up for the tech giants later today—its first such release since Jeff Bezos stepped aside as chief executive.
—Connor Smith
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We’re thinking of buying a condo for our college student child. What are the financial pros and cons?
Prices are booming in many residential real-estate markets, including college towns. Is it too late to take advantage? Maybe not.
The idea of buying a condo for your college-bound kid to use while in school might be appealing. But diving into the market sooner rather than later may be wise. You could avoid paying through the nose for a dorm room or apartment with no hope of any profit. And if you buy a condo that has some extra space, you can rent it out to your kid’s pal(s) and offset some of the ownership costs. Nice.
Many parents have made good—sometimes great—money by following this strategy for the four or five or (gasp) six years their kids spent in college. Of course, the longer you can hold on to the property, the better the odds of cashing out for a nice profit. You don’t have to sell just because your kid graduated. Another key factor is the tax angles.
Read more here.
—Bill Bischoff
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—Newsletter edited by Liz Moyer, Mary Romano, Camilla Imperiali, Steve Goldstein, Callum Keown
Robinhood’s Trading Debut Is Here. Expect Fireworks. - Barron's
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