Author: Thornton McEnery

HOOD – Robinhood earnings show a company reliant on quieting retail traders and volatile crypto pricing

Stocks? Where Robinhood
HOOD,
+6.71%

is going, it doesn’t need stocks.

When the company went public in July, it made no bones that it is a company built on growth assumptions and waist-deep in the world of cryptocurrency trading.

On Wednesday, the $41 billion no-fee trading platform disclosed its first-ever quarterly earnings report and confirmed that, for better or for worse, both of those things remain true — and also that it will more than likely get worse before it gets better.

Robinhood’s revenue from crypto transactions for the quarter was $233 million, making up just over half of its total revenue of $565 million for the June-ending period. That year-over-year growth is staggering considering that Robinhood said it made $5 million from crypto transactions in the second quarter of 2020, and the highly volatile sector now a plays a key role in the company’s future.

The company also disclosed that 60% of its 22.5 million net cumulative funded accounts traded crypto in the quarter.

Considering that Robinhood alerted investors to the fact that 34% of its crypto-trading revenue for the first three months of the year came from Dogecoin, which is up almost 6,200% in 2021 thanks in large parts to Elon Musk’s tweets, that volatility can be extrapolated even further.

But one thing that could tamp down another wild quarter for Robinhood is that fewer people will likely be using it.

On a call with analysts Wednesday, Robinhood Chief Financial Officer Jason Warnick was clear that the fall will not be as profitable as the winter or the summer months, and that investors should assume lower trading volumes and revenue for the third quarter.

Robinhood, which is still smarting reputationally among retail traders from its January decision to halt trading on meme stocks like GameStop
GME,
-3.97%

and AMC Entertainment
AMC,
-1.64%

and the height of their short squeezes, fell almost by as much as 9% in after-hours trading.

But despite reporting a topsy-turvy first public quarter, CEO Vlad Tenev cut an optimistic tone on the call with investors and analysts, speaking broadly about his startup’s plans to create digital wallets, manage IRA accounts for users and even expand internationally.

He even made a nod to the retail trading “Apes” on Reddit.

While answering a question about Robinhood’s plans to sell IPO shares of new public companies on the platform, Tenev made a clear point of using meme-stock lingo, telling those on the call that retail investors buying IPO stocks have proven to be “relatively diamond-handed.”

GME – GameStop: The incredible unshortable stock

GameStop
GME,
-2.35%

might be the unshortable stock.

Shares in the Texas-based videogame retailer dropped by more than 10% at the open Monday after the company announced it has the option to sell up to 3.5 million shares of its common stock in the near future. But as has been the case with the OG meme stock, GameStop’s legion of devoted fans on social media and no-fee trading platforms started buying as the price fell, pushing shares briefly into the green at midday before closing the day down just 2.4%.

Read: Reddit trading guru Keith Gill looks to have made over $25 million on his GameStop bet

The company’s decision to use new equity to raise capital was an expected one, but the possibility that GameStop shares would be diluted — after trading for weeks well above Wall Street analysts’ estimates — played into the thesis of institutional investors who have been shorting the stock, creating the philosophical war between hedge funds and retail traders that has gripped the market for months.

See: Will individual investors stick around after pandemic’s ‘mind-blowing’ stock trading surge?

On Monday, retail traders took to Reddit to praise GameStop’s newest move even as its stock price plummeted, keying in on the fact that GameStop’s filing includes language that it will halt any new stock offering if it raises $1 billion.

Already primed to push the stock back up to January’s nosebleed high of nearly $350 a share, Redditors jumped on a new strategy to have their cake and eat it too, without any stock dilution.

“3.5 million shares, with a hard cap of $1 billion total influx in capital,” posited one user on Reddit board r/Superstonk. “Meaning if the price is pushed above $285.714/share, then fewer than 3.5 million new shares are released.”

“GameStop is going to profit off of greedy hedge funds,” posted another.

Shares in GameStop shot up 16% over two hours of trading as this new strategy took hold, with some users posting that the shorting of the early morning merely offered them a discount on the stock.

One Wall Street analyst agreed.

“It’s the definition of insanity,” said Wedbush’s Michael Pachter. “The shorts keep doing the same thing over and over and expecting a different result, and now the [Reddit] guys get it. They’re saying ‘As long as you’ll keep covering, we’ll keep buying.’”

Pachter now sees GameStop as the existential battleground between the retail guys and the Street.

“When the shorts abandon this, it’s going to start trading on fundamentals,” Pachter said of GameStop. “The best-in-class operating retailers make 5% operating profit, which is going to be very hard for GameStop to get to, but if they even just raise $700 million in one small offering, their value has already gone up.”

The retail crowd appears to agree.

“I mean, we can just *buy* the 3.5 million shares before the hedge funds get a hold of them,” posted one Reddit user on Monday.

CCHWF – Cannabis legalization in New York gets one pot ETF much higher than the rest

Cannabis ETFs are all benefiting from news that pot is now legal in New York State but while some are merely lighting a celebratory spliff, retail investors are helping one ETF break out the bong.

Pot stocks across the board were up Wednesday after New York Governor Andrew Cuomo signed legislation immediately legalizing cannabis for recreational use in the Empire State, but AdvisorShares Pure US Cannabis ETF
MSOS,
+7.86%

stood out from the pack surging 8.04% well outpacing similar products like the ETFMG Alternative Harvest ETF
MJ,
+2.42%

and AdvisorShares Pure Cannabis ETF
YOLO,
+6.10%
.

A key force in Wednesday’s action was retail interest in MSOS, reflected in the monster trading volume on the ETF , which was well over its daily average and significantly higher than the sector.

And there were more immediate indicators.

“You can’t trade the Canadian weed stonks,” one user posted on a Reddit r/wallstreetbets. “MSOS is the only play today.”

“[MSOS] looks they’re directly invested in US plant-touching businesses,” explained Matt Karnes, founder of cannabis-centric firm Greenwaves Advisors. “They really have a synthetic return but that still likely still attracts the retail crowd.” 

State legalizations are almost always a boon to the cannabis market, but the lack of federal legalization in the US has been a complicating factor for investors looking to monetize the spreading availability of THC. So-called “plant-touching” companies which either grow or distribute cannabis face massive regulatory hurdles when trying to list on a US exchange.

Some of the most heavily-traded pot stocks, like Aurora Cannabis
ACB,
+2.87%

and Canopy Growth
CGC,
+0.85%

now trade on the NYSE or Nasdaq ,but they were only allowed to do so after going public in their native Canada and then using an acquisition or a special application process that proves they are not operating in the US.

Because of the paucity of big, tradeable pot stocks operating inside the 50 states, the cannabis  market has been extremely volatile and speculative relying a lot on the aforementioned Aurora, Canopy, or fellow Canadian grower Tilray
TLRY,
+3.13%
.
For the ETF sector, that situation has created similar-looking baskets of Canadian-based equities that are not immediately impacted by state-by-state legalizations.

That’s not the case with MSOS, which uses total return swaps to gain exposure to US-based, Canadian-traded “plant touching” operations like Massachusetts-based Curaleaf Holdings
CURA,
+5.71%

and New York-based medical dispensary Columbia Care
CCHWF,
+19.44%
.
 

Dan Ahrens, MSOS’ founder and CEO appreciated the interest of retail traders but made it clear that days like today are why he built the ETF to give investors access to actual US-based cannabis operators, often referred to as  “multi-state operators” or “MSOs.”

“We’re the only one that’s based on US exposure,” Ahrens said Wednesday as the ink dried on Cuomo’s signature in Albany. “At times, people take notice of that.”

GME – Market Extra: GameStop's 53% surge fueled by a buy/sell ratio of 3-to-1, as ‘meme' stock crowd emboldened

Call it the revenge of the meme stocks.

After taking a pummeling over the first three days of the week, shares of GameStop Corp.
GME,
+52.69%

soared Thursday, aided by retail traders who remain emotionally committed to the videogame retailer even after shares got hammered 24 hours earlier.

Meanwhile, shares of movie chain AMC Entertainment Holdings
AMC,
+21.29%
,
another popular stock among the retail traders on social-media platforms like Reddit and Discord, also popped on the session.

AMC closed out Thursday trade up over 21%, while GameStop surged nearly 53%, more than making up for Wednesday’s 40.5% loss, which represented the worst day in seven weeks, following its disappointing quarterly results reported after the close of regular trading hours Tuesday.

“WE ARE ALL WITNESSES” one user of Reddit board r/WallStreetBets posted after the bell on Thursday, summing up the sentiment of GameStop bulls on the site who had been encouraging one another to “buy the dip” presented by the company’s lackluster earnings report, and stick it to the hedge funds that many users on Reddit and Discord still perceive as existential threats to unfettered gains.  

The campaign to buy GameStop appears to have worked. Data from Fidelity shows that the stock was the most actively traded by retail customers on Thursday with a buy-to-sell ratio of almost 3-to-1. 

GameStop fans scored an extra boost going into the final hour of trading when, Ryan Cohen, Chewy founder and GameStop board member, fired off a cryptic tweet that his followers were interpreting bullishly.

Cohen’s message—his first in more than two weeks—was a clip from “Ted,” Seth MacFarlane’s raunchy live-action comedy about the childhood bond between a potty-mouthed, weed-smoking teddy bear and his human friend John, played by Mark Wahlberg.

“Higher and higher!” responded one of Cohen’s followers on Twitter.

AMC, which was Thursday’s fifth-most popular stock according to Fidelity with buyers outnumbering sellers, also benefited from social-media campaigns aimed at toppling hedge funds who were short the stock.

Message boards have been disseminating unverified rumors that major investment funds and market makers were betting heavily that AMC shares would eventually sink in value.

Little was said, however, about the fact that Walt Disney Co.
DIS,
+1.19%

announced on Tuesday that it would debut two of its summer tentpole blockbusters “Black Widow” and “Cruella” simultaneously in theaters and streaming on Disney+, which in theory would deliver a bona fide hit to embattled cinema chains, including AMC, at least in the near term.

Those consiparacy theories and the potential loss of business from major film producers were cast aside on Thursday.

“Took a huge loss yesterday. Made it all back today,” posted one Redditor. “Would much rather this than 2 boring flat days. I love this s**t.”

In the end, the Reddit crowd’s typical buy-first-and-ask-questions-later strategy was back to bearing fruit—at least in the short term.

For the week, however, GameStop’s stock is looking at a week-to-date decline of 8.3% and AMC Entertainment shares are down over 21%.