For better or for worse, the no-fee investment app has now because synonymous with Main Street trading
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 will make sense of the most important developments in business and why they matter.
We know you’re busy, so think of our Buy/Sell/Hold labels as shorthand metaphor: a Buy if we view it as a positive trend or clever move; a Sell if it’s a disastrous mistake or a missed opportunity; or a Hold if it’s noteworthy but too early to call.
The Buy/Sell/Hold Analysis
“It is not lost upon us that our company and our service have become synonymous with retail investing in America,” the founders of the no-fee stock-trading app Robinhood declared last Friday. It sounded like a boast. But in fact, it was quite the opposite: The context was an official response to the apparent suicide of a 20-year-old reportedly distraught because he believed that some risky options trades he placed through the app had left him $730,000 in the red. While the specifics are unclear, the event vaulted Robinhood into the spotlight so dramatically, the unicorn startup now valued at $8.3 billion couldn’t ignore it. “Millions of new investors [are] making their first investments through Robinhood,” the statement read. “We recognize this profound responsibility, and we don’t take it lightly.”
Day-trading — short-term moves in and out of stocks that are more analogous to casino betting than investing — is having a comeback right now. A flood of stock-trading newcomers bored during a sports and gambling-free lockdown who have little experience with equities (let alone more exotic instruments like options), paired with a possibly high-risk financial era, is likely to end disastrously.
For better or worse, Robinhood has now become even more famous for “democratizing” the markets than it was a few weeks ago, when I profiled the company and its remarkable success convincing young people to trade their way through the pandemic. Robinhood’s great strength has been its ease of use: The app is explicitly designed to lower the barrier to trading — “to activate a generation of consumers that previously had sat out from the market” — and then gamify it. It does this both by offering no-fee trades and by making its interface simple and uncluttered. This formula has worked; the company says it has 13 million users (median age: 31), adding 3 million in the first quarter of this year alone, when the market was scarily volatile. It also claims that more than half of all new brokerage accounts are opened through Robinhood.
The company said it is now considering tweaks to its user interface and layering in new education and eligibility requirements for more advanced trading — basically tapping the brakes on its users’ behalf. It’s a powerful thing to become synonymous with Main Street trading, and Robinhood will benefit from the gravitas of this name recognition as long as this weirdly resilient market continues to reward more than it punishes. But that association could boomerang if Robinhood develops a reputation for being so easy to use that it has gamified trading into something addictive. Rather than representing the democratization of finance, it could end up being synonymous with fintech gone awry, to the misfortune of those it promised to help.
— Rob Walker
The projected shortfall in U.S. consumer spending for 2020 to 2021
Consumers — the spine of the American economy — will be spending much less than normal for at least the next 18 months, freezing GDP growth through the end of 2021, according to the Congressional Budget Office. In a letter to House Speaker Nancy Pelosi, Congress’ non-partisan research arm estimates American consumers will spend about $2.7 trillion less through the end of next year than they would have absent Covid-19. Since household spending makes up more than two-thirds of the economy, the shortfall means no recovery anytime soon for the tens of thousands of businesses that have been shut down by the virus. Already, Bloomberg reports, bankruptcies of companies with liabilities of $50 million or more rose to 117 last week, matching the record six-month peak set in 2009 during the last financial crash.
— Steve LeVine
- Brands Pile On to Facebook Boycott. The very moment advertising is getting pummeled — ad revenue is expected to decline for Google for the first time since 2008 — is not when you want a bunch of businesses to boycott your platform. That’s now Facebook’s latest problem: the NAACP, Anti-Defamation League, and other civil rights groups have been calling on businesses to pull their ads from the social media platform in July in protest against its promotion of “hate, bigotry, racism, antisemitism, and violence.” Outdoor retail brands North Face and REI were among the first to join the movement last Friday, followed by Patagonia over the weekend, Eddie Bauer, Ben & Jerry’s, and Magnolia Pictures on Tuesday, and ad agency Goodby Silverstein on Wednesday. Buy.
- Square Siphons Its Customers’ Payments. Jack Dorsey’s digital payments company Square has been withholding 20% to 30% of customer payments from the merchants who use its services, and intends to do so for the next four months. Square claims this is to protect businesses against customers demanding refunds, but merchants think Square is just jeopardizing their bottom lines to cushion its own in the midst of a downturn. While the fintech sector has performed surprisingly well in the downturn (thanks largely to a sudden shift to e-commerce), Square has been an exception, with profits in precipitous decline due to its reliance on point-of-sale transactions. Sell.
- Non-Alcoholic Beer Is Booming. Despite the ceaseless tide of Zoom happy hour invites, U.S alcohol sales are actually dropping during this pandemic. Beer sales have dipped an estimated 3.7% in 2020, but its non-alcoholic counterpart is seeing an estimated 32.5% jump in sales — the continuation of a 71.6% leap in 2019 and the broader trend of Americans seeking healthier drink alternatives like “leisure soda.” Buy.
- Microsoft Nixes Mixer After a Short, Expensive Run. Just three years after acquiring it, Microsoft announced it’s shutting down its video game live-streaming platform Mixer on July 22nd and partnering with Facebook Gaming to transition some of its streamers. Despite signing big gaming talent like Tyler “Ninja” Blevins to contracts reportedly worth as much as $30 million to stream on its platform, Mixer had difficulty scaling its viewership to compete with main rivals Twitch and YouTube, who will likely swoop in to woo talent that isn’t keen on Facebook. The already-tight competition between streaming platforms (and their big-tech owners Amazon and Google) just got tighter. Hold.
Roomba is a goofy name for a goofy object, and unlike many enduring tech products, ever since it emerged on the scene in 2002, it has never been widely celebrated nor demonized. But despite its modest status, everyone reading this somehow already knows what a Roomba is: the pie-shaped robotic vacuum cleaner best known for giving rides to small pets — and perhaps for being a kind of pet itself. It turns out, along with King Arthur Flour and Peloton bikes, Roomba’s have become all the rage during the pandemic, where people are trapped at home balancing work, child care, and home schooling in the same domestic space — and can’t hire professional cleaners. Recently its maker, iRobot, announced that sales were coming in better than expected — keeping houses, apartments, and peoples’ sanity intact for a $1,000 autonomous vacuum.
— Rob Walker
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