Friday Jan.29, 2021

🗺 Uncharted territory

_GM pulls a Netflix_
_GM pulls a Netflix_

Hey Snackers,

Let’s cut to the chase: Rarely has Robinhood been in the news as much as it was yesterday. Since Robinhood acquired MarketSnacks and launched Robinhood Snacks two years ago, we’ve had a consistent policy of not covering Robinhood as the primary subject of a story (you can find our Editorial Principles here).

Continuing that precedent, we’re covering one of the biggest market trends in decades, and referencing Robinhood in the context of these wider events.

If you’d like to see Robinhood’s company updates, check out Robinhood’s blog.

Market

Social-fueled stock surges mean uncharted territory for the modern market

Quick recap... Over the past few weeks, some “underdog” stocks have seen meteoric rises thanks to mass buying campaigns stoked through social media (mainly Reddit, via the subreddit r/wallstreetbets). Example: from January 11th to January 27th, GameStop shares surged 1,600%, and AMC stock soared 800%. Nokia, BlackBerry, Tootsie Roll, and others also skyrocketed on the unprecedented social momentum.

  • On Wednesday, the New York Stock Exchange temporarily paused trading of GameStop, BlackBerry, and AMC, citing volatility.
  • Also Wednesday: Schwab’s TD Ameritrade limited certain transactions of some high-flying stocks. But the stocks still finished the day up significantly.

And then, yesterday happened... Some brokerages, including Robinhood, E-Trade, and Webull, temporarily restricted certain trading activity in symbols like GME. Investors of the restricted companies were only allowed to hold or sell shares (not buy more). Meanwhile, some brokers increased margin requirements (the percentage of the purchase investors need to fund themselves rather than borrow). Then...

  • The stocks that were paused plunged. GameStop fell 44% yesterday, while AMC dropped 57%. Brokers cited financial and regulatory reasons for these moves. Some investors lost money, and many were angry (disclosure: Robinhood, which owns Robinhood Snacks, made a public statement).
  • TLDR: Brokerages need to meet certain regulatory net capital and clearinghouse deposit requirements to remain compliant and ensure that trades go through properly. These requirements can rise as certain stocks become more volatile/risky.

This is an unprecedented moment in the market... From the rise of commission-free retail investing, to the surge of social-driven buying campaigns targeting hedge funds, we're moving into new territory for how the stock market operates. There's still a lot we don't know about this new reality and how it’ll unfold – including if structures, rules, or regulations will change to adapt to it.

Electrify

General Motors is pulling a Netflix (but instead of ditching DVDs, it's ditching gas)

Major gear shift... GM is a 113-year-old company known for trucks built "like a rock." 98% of its sales and 100% of its profits come from gas-powered cars (it’s still in the money-losing phase of EVs). Large pickup trucks and SUVs are some of GM's biggest profit puppies (and biggest gas-guzzlers).

  • Over the past few years, GM has been shifting gears. In November, GM said it would spend $27B on electric and autonomous vehicles by 2025.
  • This month, GM unveiled its futuristic electric delivery solution, complete with electric pallets and a fresh fleet of e-vans.
  • Yesterday: GM went all in, setting an ambitious 2035 target for phasing out gas and diesel-powered vehicles from its global lineup.

Sounds familiar... GM is America's largest car maker (by sales — sorry, Tesla). It's also one of the first major automakers to slap a timeline on transitioning to full-electric. But GM isn't doing this in a vaccuum: Major governments — from CA, to Japan, to the UK — have said they'll start to ban the sale of new gas-powered vehicles in the 2030s. Meanwhile, Biden has pledged $2T to clean energy innovation, with the goal of a carbon-free power sector by... 2035.

GM’s pulling a Netflix... and burning its boats. 100% of Netflix's sales pre-2007 were from DVDs. Then CEO Reed Hastings moved the entire DVD team to a separate part of the building, and went all-in on streaming. In order to disrupt itself before Tesla does, GM can't just sprinkle change into its corporate plan — it needs to burn its entire biz model.

What else we’re Snackin’

  • Vax: Novavax said its Covid-19 vaccine is more than 89% effective, and nearly 86% effective against the UK variant.
  • Buzzed: Diageo, the liquor legend behind Don Julio and Casamigos, saw tequila sales jump 80% in the second half of 2020.
  • Snacky: Oreo-maker Mondelez had an expectation-beating quarter thanks to our quarantine stress-snacking.
  • Down: American and Southwest posted record annual losses as flight sales plunged. It was Southwest's first annual loss since 1972.
  • Flurry: McDonald's US same-store sales jumped 5.5% last quarter, thanks to marketing and promos (like the Travis Scott meal).

Friday

Authors of this Snacks own shares of: GM and Apple

ID: 1502223

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