Daily Business Briefing
Aug. 18, 2021, 7:12 p.m. ET
Aug. 18, 2021, 7:12 p.m. ET
SAN FRANCISCO — Robinhood, the stock trading app, on Wednesday reported surging quarterly revenue as pandemic trading became a permanent hobby for many customers, but it still lost money.
In its first earnings report as a public company, Robinhood said its revenue for the second quarter soared to $565 million, up 131 percent from the same period last year.
It also lost $502 million, compared with a profit of $58 million a year prior. The company attributed a significant chunk of that loss to warrants from an emergency funding round it raised this year.
Vlad Tenev, Robinhood’s chief executive, said in a statement that he was “encouraged” by the number of people trading stock for the first time via Robinhood. The company reported 22.5 million user accounts with funding in them, a 130 percent increase from 9.8 million in the same period last year.
A significant portion of Robinhood’s growth in the quarter also came from cryptocurrency trading after the price of Bitcoin and other cryptocurrencies hit record highs in the spring. Revenue from cryptocurrency trading fees totaled $233 million, a nearly 50-fold jump from $5 million a year earlier. More than 60 percent of its customers traded cryptocurrency during the quarter, and more new customers used the app to trade cryptocurrencies than stocks, the company said.
Robinhood’s initial public offering in July was a disappointment. The company’s stock began trading at $38 a share, which was the bottom of a price range proposed by its bankers. The shares then fell, ending their first day down 8.4 percent.
A week later, individual stock traders began driving the price up, mostly through the trading of options, a high-risk form of trading that Robinhood facilitates. The company’s shares then jumped as high as $70 each.
The rally turned Robinhood into the kind of “meme stock” that trades based on momentum and sentiment rather than business fundamentals. Nothing had changed in Robinhood’s business outlook to influence the sudden surge.
The company’s share price has since settled at around $50 per share, valuing the company at $41.8 billion. Its shares fell more than 7 percent in after-hours trading on Wednesday.
Robinhood has helped fuel meme stocks by facilitating traders who have repeatedly driven up the prices of aging brick-and-mortar businesses like GameStop, the video game retailer, and AMC, the movie theater chain. Robinhood’s mission to bring Wall Street-style investing to everyday people has included options trading and other risky bets, leading some customers to record shocking losses and drawing the ire of those who believe in a more traditional “buy and hold” investing strategy.
Robinhood incorporated that ethos into its public market debut, allocating an unusually large portion of its I.P.O. shares to retail investors through its app and allowing customers to pose questions in its investor pitch and earnings calls. This month, it spent $140 million to acquire Say Technologies, a company that facilitates investor question and answer sessions and proxy voting.
Yet like many Silicon Valley companies, Robinhood has also limited the rights of its shareholders by issuing multiple classes of shares. That structure has given its founders, Mr. Tenev and Baiju Bhatt, voting control over the company.
Before the company released its results on Wednesday afternoon, one of the top shareholder questions, with more than 900 votes, was whether investors could get a Robinhood hat and “hoody jacket.”
Jason Warnick, Robinhood’s chief financial officer, said he would look into it. “I love the enthusiasm for the brand,” he said.
U.S. stocks fell for a second day on Wednesday, with the benchmark S&P 500 falling 1.1 percent — its biggest decline in about a month.
The declines — the index is now down 1.6 percent over two days — came amid growing uncertainty about the outlook for the economy. On Tuesday, the Commerce Department reported that retail sales fell 1.1 percent in July, worse than analysts had expected.
Oil prices, which have been declining in August, continued to fall, with West Texas Intermediate crude dropping 2.5 percent on Wednesday. Crude oil prices, which tend to track sentiment about the global economy, have fallen more than 12 percent this month.
Energy stocks were the worst-performing part of the S&P, declining more than 2 percent. Chevron fell 4 percent.
Technology stocks also fell, with Apple, the biggest company in the S&P, which is weighted by market valuation, dropping 2.6 percent. Shares of Amazon were 1.3 percent lower.
On Wednesday, the Federal Reserve released minutes from its policy-setting meeting last month showing that officials are preparing to slow the central bank’s large purchases of government-backed bonds. They broadly agreed that their maximum employment and price stability goals would soon be met.
But the Fed policymakers continued to debate when to begin. Some of them wanted to slow bond purchases soon to guard against the risk of higher inflation, and “a few” were worried that continued big purchases could lead to financial system risks, the account of the meeting released Wednesday showed.
Target dropped 2.8 percent after the retailer reported that sales growth was slowing after the big-box chain’s revenue surged during the pandemic. The company forecast single-digit growth in comparable-store sales for the second half of the year.
Lowe’s shares rose 9.6 percent, rebounding from a drop on Tuesday, after the home improvement chain reported that profits rose 6 percent from a year earlier, driven by home installation services and home décor products. Lowe’s same-store sales declined by 1.6 percent in the quarter.
The International Monetary Fund said on Wednesday that it will block Afghanistan from accessing emergency reserves in the aftermath of the Taliban’s swift takeover of the country.
The decision came as the fund was scheduled to disburse about $460 million in emergency currency reserves to Afghanistan next week and followed pressure from the Biden administration to ensure that the reserves, known as Special Drawing Rights, did not reach the Taliban.
“There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot access S.D.R.s or other I.M.F. resources,” Gerry Rice, an I.M.F. spokesman, said in a statement, adding that its decisions are guided by the views of the international community.
Earlier on Wednesday, the Biden administration was working to prevent the Taliban from getting the reserves, a Treasury Department official said.
The I.M.F. is funded with contributions by its 190 member nations, and the United States is the largest shareholder. So its opposition to the Taliban obtaining access to the reserve assets, known as Special Drawing Rights, carries significant weight.
The I.M.F., which was established after World War II to help stabilize the global economy, approved a $650 billion allocation of currency reserves earlier this month as part of an effort to help developing countries cope with the coronavirus pandemic. The reserve assets, which can be exchanged for dollars or other currencies, are divided among countries, and Afghanistan was set to receive its share next week.
The swift toppling of Afghanistan’s government by the Taliban put the I.M.F. in a difficult position. The agency is guided by its member countries, and if a government is not recognized as legitimate then it cannot gain access to existing or new S.D.R.s, according to a person familiar with the matter who was not authorized to speak publicly.
Canada, the European Union and Russia have said publicly that they are not ready to recognize the Taliban as the government in Afghanistan.
Jake Sullivan, the White House’s National Security Adviser, said Tuesday that it was too soon to address whether the United States will recognize the Taliban as the legitimate power in Afghanistan.
“Ultimately, it’s going to be up to the Taliban to show the rest of the world who they are and how they intend to proceed,” Mr. Sullivan said. “The track record has not been good, but it’s premature to address that question at this point.”
The United States remains engaged with the Taliban over the transfer of power in Afghanistan but has been careful not to let go of any leverage it has over the group.
The Treasury Department moved over the weekend to block access to $9.4 billion of international reserves held by Afghanistan’s central bank, most of which is stashed in accounts at the Federal Reserve Bank of New York.
There is precedent for the I.M.F. to block countries from their currency reserves. Earlier this year, the fund said that Venezuela would not have access to the $5 billion of S.D.R.s that it would have received because of a dispute over the Maduro government’s legitimacy.
The Biden administration backed the allocation of new S.D.R.s this year over the opposition of some Republican lawmakers who argued that the United States was giving money to adversaries such as Russia, China and Iran. Treasury Secretary Janet L. Yellen has dismissed that idea, arguing that the United States would not agree to exchange dollars for S.D.R.s with a country it considers to be a bad actor.
A group of lawmakers sent a letter to Ms. Yellen on Tuesday, urging her to intervene in the scheduled release of $650 billion in International Monetary Fund emergency reserves.
“The potential of the S.D.R. allocation to provide nearly half a billion dollars in unconditional liquidity to a regime with a history of supporting terrorist actions against the United States and her allies is extremely concerning,” they wrote.
Federal Reserve officials are preparing to slow the central bank’s large purchases of government-backed bonds, the first step toward a more normal monetary policy setting as the economy heals from the pandemic — but when they met last month, they remained starkly divided over just when the pullback should happen.
Minutes from the central bank’s July 27-28 gathering showed that Fed officials generally thought they would soon meet their standard for slowing bond purchases, which they had previously established as “substantial further progress” toward the central bank’s maximum employment and inflation goals.
“Most” of the officials “judged that the standard set out in the committee’s guidance regarding asset purchases could be reached this year,” the release showed. But precisely when to begin remained a matter of active debate.
Some officials wanted to slow bond purchases soon to guard against the risk of higher inflation, and “a few” were worried that continued big purchases could lead to financial system risks, the account of the meeting released Wednesday showed.
But a few others argued for a slower process, stressing that rising Delta variant coronavirus cases posed risks to the economic outlook, and several worried that in coming years inflation — though high today — could dip to uncomfortably low levels again. Several of the officials also pointed to big lingering uncertainties, like when workers would return to jobs.
The snapshot of Federal Open Market Committee deliberations comes ahead of the central bank’s most closely watched annual gathering, an economic symposium in Jackson Hole in Wyoming that will take place next week. Jerome H. Powell, the Fed’s chair, will deliver a speech at the event, and many investors expect he could provide hints or details about the central bank’s coming policy move.
Mr. Powell and his colleagues are working against a complicated backdrop as the economy grows rapidly and as inflation and asset prices pop, but the labor market recovery remains incomplete, with nearly 7 million jobs still missing compared with employment levels at the start of the pandemic.
The Fed is still holding interest rates near zero and plans to do so until the labor market is more fully healed, which means monetary policy will continue to support the economy even once the bond buying begins to slow. Fed officials have suggested that they may favor raising interest rates by late 2022 or — more popularly — 2023.
Some officials who are eager to start to slow bond purchases soon have emphasized that moving early and quickly would allow the Fed to be more flexible when it comes to raising borrowing costs. The Fed is buying $120 billion in Treasury and mortgage-backed debt each month, and officials have said they would prefer to bring that policy to a close before lifting the federal funds rate.
The debate over timing was still unresolved in July.
“Various participants commented that economic and financial conditions would likely warrant a reduction in coming months,” the minutes released on Wednesday said. “Several others indicated, however, that a reduction in the pace of asset purchases was more likely to become appropriate early next year.”
How quickly the slowdown in buying will happen was also up for discussion, and participants expressed “a range of views on the appropriate pace of tapering asset purchases.”
The last Fed meeting came before the Labor Department reported that hiring in July was strong, creating a sunnier snapshot of the job market’s recovery.
“Since the July F.O.M.C. meeting, the probability of a September announcement and an October or November start date to tapering those purchases has increased considerably, in our view,” Bob Miller, the head of fundamental fixed income in the Americas for BlackRock, wrote following the release.
But the minutes also came before infections from the Delta variant of the coronavirus surged so drastically.
“The uncertainty created by Delta, as well as the uncertainty over the post-summer labor market and the path of inflation, all reinforce our view that a tapering announcement is not imminent,” Ian Shepherdson, the chief economist at Pantheon Macroeconomics, wrote in a research note. “We think it will come in November, and even that is contingent on the Delta wave clearly subsiding before then.”
The Fed meets next on Sept. 21-22.
Facebook’s mission is to “bring the world closer together.” Increasingly, that’s about not just connecting friends and family to share messages, but also serving as a platform for people’s financial lives.
Some $100 billion in payments have been enabled by Facebook over the past year, said David Marcus, who runs the company’s financial services unit. But that’s just the start of the social network’s ambitions in the finance industry, Mr. Marcus writes in a new memo about the country’s “broken” payments system, reported in the DealBook newsletter.
At the center of Facebook’s push into payments is Novi, a digital wallet intended for users to move money around the world quickly and cheaply (free, in many cases). The company had a plan to pair it with a “stablecoin” cryptocurrency called Libra, but that was shelved amid regulatory scrutiny, and now the scaled-back project, known as Diem, is overseen by an outside nonprofit group seeking the necessary government approvals.
In recounting some of Facebook’s setbacks in trying to break into the crypto payments industry, Mr. Marcus describes the tech giant, the subject of antitrust inquiries around the world, as an underdog.
Facebook faces unfair resistance in the financial industry, he wrote. “I’ve heard multiple conversations about how this proposal would be so great if only Facebook wasn’t involved,” he said. “I understand and accept the need for extra scrutiny due to our scale.”
But Mr. Marcus describes Facebook as a “challenger in the payments industry,” with no specific plan yet to monetize use of the Novi wallet, which won’t charge for person-to-person payments, even across borders.
He added that allowing users to pay with dollars, euros and other fiat currencies via the Novi wallet would bring a lot of value.
“So why not just do that and call it a day?” he wrote. “Well, we might.” But before deciding on that, he doesn’t want to “waste our shot” at incorporating stablecoins into an “open, interoperable protocol” for online payments. “To have the maximum impact, building a closed system using fiat only wasn’t going to cut it,” he said in the memo.
Crypto advocates say that blockchain technology allows for products that eliminate middlemen, credit checks and fees, and that it allows people excluded from traditional financial services to transact anytime, anywhere. Mr. Marcus believes that a well-designed stablecoin pegged to a fiat currency, backed one to one in cash reserves, could offer strong consumer protections. It would also provide quicker access to funds than traditional bank accounts.
In practice, regulators are wary of stablecoins. An investigation of the popular stablecoin Tether by the New York attorney general’s office found that the company minted tokens without reserves to back them. In recent weeks, crypto tokens have raised concerns from the Treasury secretary, Janet L. Yellen; the Securities and Exchange Commission chair, Gary Gensler; and Senator Elizabeth Warren, Democrat of Massachusetts.
Mr. Marcus is seeking to allay those concerns. “We will continue to persevere and demonstrate we can be a trusted player in this industry,” he wrote, adding that the Novi wallet has licenses or approvals in nearly every U.S. state and that the Diem stablecoin project “has addressed every legitimate concern.”
Facebook’s digital wallet is ready to come to market, Mr. Marcus said, and “we deserve a fair shot.” To judge by Facebook’s difficulties getting to this point, regulators remain to be convinced.
Airlines are just barely beginning to recover, but investors seem to think there’s room for at least one more.
Breeze Airways, a low-fare carrier that started flying less than three months ago, said Wednesday that it had raised $200 million, bringing its total capital to more than $300 million.
“It just says a lot about our plan and our people and our opportunity going forward,” said David Neeleman, the airline’s founder and chief executive. “It solidifies our future, and we’re very excited about it.”
Breeze’s business model rests on offering flights between cities that tend not to be directly connected by other airlines. Its first flight was on May 27, from Tampa, Fla., to Charleston, S.C. The airline now offers 39 routes and flies to 16 cities, including New Orleans, Oklahoma City, San Antonio and Akron, Ohio.
“It’s just easier to be successful when you have no competition,” Mr. Neeleman said.
He has founded five airlines, the most prominent of which is JetBlue Airways. That company started flying more than two decades ago with about $135 million in capital, he said. Azul Linhas Aéreas Brasileiras, another airline he founded in Brazil, started more than a decade ago with $235 million.
Breeze’s funding round was led by BlackRock and Knighthead Capital Management, which also invested in Azul. The airline’s earlier investors, including Peterson Partners and Sandlot Partners, also contributed to the round.
Breeze, which is based in Salt Lake City, claims that it uses planes and technology more efficiently than other airlines, allowing it to offer lower fares. The airline currently flies 13 Embraer jets, and it will start receiving 60 new Airbus A220 planes in October at a pace of about one each month over the next five years. The airline hopes to have the first new Airbus planes in operation early next year, pending regulatory approvals.
The pandemic complicated Breeze’s launch, but it has helped in some ways, too. The company was able to buy planes more cheaply as other airlines reduced their fleets to cut costs. Like the rest of the industry, it has enjoyed strong demand this summer after widespread vaccinations in the spring, though recently travel has slowed somewhat with the spread of the Delta variant of the coronavirus. Breeze plans to dedicate at least two planes to full-time charter service, and the airline has identified 400 city pairs that align with its approach.
“We have a lot of great things, so having this capital in the bank, having this cushion is really good for us,” Mr. Neeleman said.
The Daily Beast digital news site named Tracy Connor as its next top editor on Wednesday.
Ms. Connor, 54, will take over as editor in chief immediately, the company said in a statement. She had been acting in the role since Noah Shachtman recently left it for the top job at Rolling Stone magazine.
A native New Yorker, Ms. Connor worked at the city’s tabloids, The New York Post and The Daily News, for more than a decade. She then moved to NBC News and spent time in its investigative unit, where she helped lead an investigation into serial sexual abuse by the former gymnastics doctor Larry Nassar.
In 2018, she joined The Daily Beast as executive editor, working under Mr. Shachtman. She said in an interview that she had come to The Daily Beast because it seemed “like an almost perfect blending of my tabloid background and also the passion that I had developed for deep digging.”
Ms. Connor will now lead all of the editorial strategy and functions of the publication’s newsroom.
“I really want to double down on investigations and impact,” she said, adding, “What we want to do is find the scandal before the scandal breaks.”
Ms. Connor said she also planned to expand The Daily Beast’s opinion section.
“We’re definitely known for our sharp political columns,” she said. “I’d like to expand that ‘voiciness’ into more columns on a broader array of topics, whether it’s culture and entertainment and lifestyle topics, and then also more columns that are pivoting right off national news that is happening outside of D.C.”
With a newsroom of 65, The Daily Beast has become known for its frequent scoops and scrappy tabloid style. The website was started in 2008 by Tina Brown, the former Vanity Fair and New Yorker editor, and Barry Diller, the chairman of IAC, which owns The Daily Beast.
“I’m always most pleased to promote from within, and Tracy Connor is a fine example of that preference: talented, savvy and more than capable of leading The Beast,” Mr. Diller said in a statement.
Heather Dietrick, the chief executive of The Daily Beast, said in a statement that Ms. Connor had a “ferocious appetite for unearthing the biggest stories and an unwavering commitment to excellence.”
A spokeswoman for IAC said the publication’s overall revenue in the last quarter was up more than 50 percent from a year earlier. She added that revenue from memberships, which provide additional content, had more than doubled year over year. The website had its highest traffic on record last month, she said.
Propelled in part by surging demand during the pandemic, people spent more than $610 billion on Amazon over the 12 months ending in June, according to Wall Street estimates compiled by the financial research firm FactSet. Walmart on Tuesday posted sales of $566 billion for the 12 months ending in July.
Wall Street firms had been expecting this retail baton to change hands in the coming years, Karen Weise and Michael Corkery report for The New York Times. But the pandemic accelerated the timeline, as people stuck at home relied on deliveries. Walmart’s sales rose sharply during the pandemic, but it has not matched Amazon’s.
Alibaba, the giant online Chinese retailer, is the world’s top seller. Neither Amazon nor Walmart is a dominant player in China.
Walmart’s sales grew $24 billion in the last year, the company said Tuesday. During roughly the same period, the total value of everything people bought on Amazon rose by nearly $200 billion, analysts estimate.
Although the figures are calculated differently, analysts regularly use them as a rough comparison. Knowing the full value of Walmart’s sales is simple, because they nearly all come from its own inventory and are disclosed publicly each quarter. But analysts must estimate the value of Amazon’s overall sales because most of what people buy on its site are products owned and listed by outside merchants. The company publicly reports only the fees it takes from those transactions.
With Amazon’s success has come greater scrutiny. And the company has started to receive many of the same complaints that Walmart faced during its biggest periods of expansion more than a decade ago. READ THE FULL ARTICLE →
The Australian airline Qantas will require vaccinations for all employees. Pilots, flights attendants and other airport workers must be fully vaccinated by Nov. 15, while other employees will have until March 31. In a survey of nearly 12,000 employees, 89 percent said they were or planned to get vaccinated, with 4 percent saying they were unwilling to do so, the airline said. About three-quarters of those surveyed supported a mandate.
Coffee roasters have a problem. The cost of the beans that they import has soared this year, leaving roasters anguishing over whether their customers, from grocery stores to cafes to people looking for their daily latte, will tolerate higher prices.
Get Ready to Pay More for Your Morning Joe
Get Ready to Pay More for Your Morning Joe
Climate shocks in Brazil and shipping bottlenecks have pushed the price of coffee beans higher — and farmers and roasters are feeling the effects.
That also means your coffee could get more expensive. Here’s why →