United States of America Scoping: Robinhood stumbles 💸

Robinhood stumbles 💸

Posted by :

Tonight: Robinhood stumbles on its first day of trading; ScarJo is suing Disney, and the MacKenzie-Melinda partnership of my dreams is becoming a reality. Let's get into it.

By Allison Morrow

💸 TEPID WELCOME

It's one of the buzziest IPOs in a year packed with buzzy IPOs: Robinhood, the investing app that has upended the investing world, made its long-awaited Wall Street debut on Thursday. It was a rocky start, to say the least.

The company finished the day at $34.82 per share, down 8% from its initial public offering price (which was already at the low end of its target range) — not exactly the first-day pop that newly listed companies crave, CNN Business' Matt Egan writes.

While it wasn't a slam dunk, the deal still values Robinhood at about $30 billion, on par with companies like Southwest Airlines and Kroger. And it's well above the $12 billion price tag Robinhood scored in its most recent round of private funding.

WHY THE LUKEWARM DEMAND?

Robinhood is under stress on a number of fronts. Not least:

Questions about its business model: The Securities and Exchange Commission is reviewing a controversial practice called "payment for order flow," which is the primary way Robinhood makes money. If the SEC bans payment for order flow, Robinhood's revenue stream would be in serious jeopardy.
Regulatory scrutiny: CEO Vlad Tenev is not licensed with FINRA, Wall Street's powerful self-regulator, a fact that's raised eyebrows among regulators. (Robinhood has argued Tenev is not required to be licensed because he's the CEO of the parent company, not its broker-dealer arm.) FINRA also slapped the brokerage with its biggest-ever penalty and accused the company of harming millions of customers and giving investors "false or misleading information." (Robinhood neither admitted to nor denied the FINRA charges.)
Levered to the market: Robinhood's bottom line is closely linked to the fate of the market. The company is barely eight years old, and has never seen a prolonged market downturn. If/When the party dies down on Wall Street, it's unclear how the app will get by.
Brand damage: Robinhood's role in the GameStop trading frenzy in January has left a bad taste in the mouths of investors who were harmed by the app's sudden and prolonged suspension of trades on certain meme stocks. They're not over it, and many are sitting out the IPO and bashing the company on Reddit.

💰 NUMBER OF THE DAY

$40 million

The First Wives Club of Seattle is real and I am dyyyyyiiiiinnnnngggggggg. Melinda French Gates and MacKenzie Scott, both verified gems, must be Nightcap readers because they've heard my pleas and have responded that they are in fact best friends who will save the world … OK I'm exaggerating slightly, but the pair are in fact teaming up to donate $40 million to advance gender equality. World domination has to start somewhere.

⚖️ SMOKE AND MIRRORS

A federal indictment against Trevor Milton, the founder of electric truck startup Nikola, includes some of the wildest accusations we've ever seen against a startup founder.

Milton was taken into custody in New York on Thursday after prosecutors formally charged him with fraud.

The indictment lays out some truly mind-boggling anecdotes, and accused Milton of lying about "nearly all aspects of the business." Now, I didn't go to business school or whatever, but deceiving investors sounds, like, really dumb. My colleague Michael Ballaban dug a little deeper into the indictment for some highlights of Milton's alleged misdeeds:

Fords in disguise: The indictment alleges that Milton repeatedly said Nikola's Badger pickup truck, was a "ground up" and "clean sheet" design. In reality, its Badger prototypes were Ford F-150s that Milton directed engineers gussy up and make look like Badger designs.
Duct-taped doors: While shooting a concept video, the Nikola One vehicle had to be towed up a hill and then was filmed rolling down it, as if it could actually drive (it couldn't). And the truck's door, "which had been constructed using minivan parts," had to be taped up to prevent it from falling off, the indictment reads.
If you Google it, it will come? Milton promised that a pickup truck would have its own water fountain, equipped with nothing but the water generated by the vehicle's hydrogen fuel system. After saying so, Milton allegedly then went to Google whether or not such a thing was even possible.

I mean, that last one is something I would totally do, without a doubt, but I'm not the head of a $5 billion publicly traded enterprise, you know? Context is everything.

QUOTE OF THE DAY

If you really want to go unvaccinated, you can dine somewhere else, and you can also go work somewhere else.

Danny Meyer, restaurateur and CEO of Union Square Hospitality Group, which operates high-end restaurants in New York and DC, is requiring all of his employees and customers to prove they've been vaccinated against Covid-19.

WHAT ELSE IS GOING ON?

🕷️ Scarlett Johansson is suing Disney over its decision to release "Black Widow" on its streaming service at the same time as theaters. The suit alleges that Johansson's salary for the film would be based largely on the film's box-office haul.

🥣 Nestlé, the world's largest food and beverage company, is introducing even bigger price hikes as commodity and transportation costs surge.

📈 The US economy in the second quarter expanded at its fastest pace since last fall, growing at a seasonally adjusted, annualized rate of 6.5%.