Robinhood Stock Sale Soured By Investor Confusion, Valuation | Sidnaz Blog

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Robinhood Markets Inc.’s


HOOD 3.45%

bid to revolutionize IPOs has created losses for investors instead, after one of the year’s most highly anticipated listings fell flat.

In a regulatory filing in early July, the trading platform’s co-founders said they would open their initial public offering to customers on equal terms with institutional investors. They said they recognized it may be the first IPO many would participate in, and pledged to “never sacrifice the safety of our customers’ money.”

It now appears Robinhood’s commitment to “democratizing” the IPO process played a role in the offering’s big initial stumble Thursday. An innovative auction system sowed some confusion among investors, many already suspicious of the valuation of a business that has drawn scrutiny from regulators and criticism from customers, people involved in the process said.

The stock, initially priced at $38, the bottom of the target range, sits below that. It is a disappointing result at a time when IPOs are booming and investor appetite for new issues is robust.

Robinhood proudly tore up the traditional IPO playbook. It insisted a large chunk of its stock—in the end up to 25%—go to its individual-investor customers compared with the normal retail allocation of well under 10%. It said employees could sell a portion of their stock right away instead of being locked up for six months. And when it came to determining the price of its IPO, Robinhood decided to use a hybrid-auction process, which attempts to assign shares to investors based on what they are willing to pay, regardless of who they are.

Robinhood co-founder Baiju Bhatt, in gray suit, and CEO and co-founder Vladimir Tenev in the Wall Street area of New York City on Thursday.

The hybrid auction has worked in other IPOs in the past year. In typical listings, underwriters give their investor clients updates throughout the roadshow—the seven- to 10-day period in which a company pitches its stock. These updates typically include guidance on how much demand bankers are seeing for the shares and the rough price they ultimately expect to set.

In this case the company and lead underwriters

Goldman Sachs Group Inc.

and

JPMorgan Chase

& Co. gave few such updates, people familiar with the matter said. When some large investors called the other underwriters on the deal, some of those bankers pleaded ignorance.

The opaqueness of the process sowed suspicion among some investors who assumed the deal was going poorly and adjusted their orders accordingly, investors and bankers said.

Many had already expressed concern about how much of Robinhood’s revenue comes from a controversial practice called payment-for-order-flow, which the Securities and Exchange Commission is reviewing, people who attended the roadshow said. Others questioned what they saw as the high valuation the eight-year-old company was seeking—in excess of $30 billion.

Another concern: whether Robinhood’s controversial decision earlier this year to stop users from buying meme stocks like

GameStop Corp.

would prompt some to eschew the offering.

Wednesday night, as bankers met with Robinhood Chief Executive

Vlad Tenev

to set the price, some investors said they were only told it would be within the $38 to $42 target range. This surprised many large institutions, who are used to more guidance heading into a pricing meeting.

A Robinhood IPO event in Times Square.

An unusually large percentage of shares were set to be allocated to hedge funds, which are more likely to “flip” IPO stock on the first day of trading, according to people close to the deal. To bring in more of the biggest institutional funds who are viewed as “buy-and-hold” investors, Robinhood chose $38 a share instead of the higher price some funds were willing to pay.

The company and Goldman felt comfortable that the lower price was conservative enough that the shares would rise on their first day of trading, especially given the buzz around Robinhood in the lead-up to the listing, according to people close to the deal.

Instead, the stock opened at $38 a share, unusual at a time when big initial pops for hot IPOs are more the norm. It rose higher briefly, touching $40 before dropping through the IPO price. It closed down 8.4% Thursday.

The shares fell further still Friday morning before regaining some ground in the early afternoon.

The brokerage app Robinhood has transformed retail trading. WSJ explains its rise amid a series of legal investigations and regulatory challenges. Photo illustration: Jacob Reynolds/WSJ

Robinhood’s Stock Market Debut

Write to Corrie Driebusch at [email protected]

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Should You Be Buying What Robinhood Is Selling? | Sidnaz Blog

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In rare cases, such pitches have paid off big time. More often, you’d have done yourself a favor by taking roughly half your money and lighting it on fire instead.

Just as Robinhood isn’t the first brokerage to offer commission-free trading, it isn’t the first to seek to “democratize” investing or to sell a piece of itself to its own customers.

On June 23, 1971, Merrill Lynch, Pierce, Fenner & Smith Inc. became the first New York Stock Exchange firm catering to individual investors to offer its shares to the public.

Thirsty for fresh capital in a struggling stock market, Merrill flogged its shares to its own customers, tapping the firm’s “awesome recognition among that vast segment of the population,” reported The Wall Street Journal the next day. “Primarily small investors, the type long championed by Merrill Lynch, quickly purchased the entire amount.”

Nearly 400 insiders at the firm unloaded a total of 2 million shares in the offering. From its initial $28 per share, the stock shot to about $42—a 50% pop—then closed around $39. That valued Merrill at 30.5 times its prior-year earnings, much higher than the overall stock market’s price/earnings ratio of 18.7.

Less than three weeks later, Merrill announced that its net earnings had fallen nearly 50% from the prior quarter.

For the rest of 1971, Merrill’s stock lost 9.4%; the S&P 500 gained 4%, counting dividends.

In 1972, when the S&P 500 rose nearly 19%, Merrill sank 7.7%. And in 1973-74, when the S&P 500 lost 37%, Merrill’s stock slumped by 61%. In its first three full years, Merrill’s stock lost three-quarters of its value; the S&P 500 fell only 5%.

Here in 2021, Robinhood’s offering is one of several trading and investing IPOs:

Coinbase Global Inc.,

the cryptocurrency exchange, went public in April, and

Acorns Grow Inc.,

which helps users invest in tiny increments, said in May that it expects to go public later in the year. Since its Apr. 14 debut, Coinbase is down about 27%. Robinhood fell 8% on its first day of trading Thursday.

One of Wall Street’s oldest and frankest sayings is “When the ducks quack, feed ‘em”—meaning that whenever investors are eager to buy something, brokers will sell it like mad.

Back in 1971, that was the brokers’ own shares. Roughly half a dozen major firms sold stock to the public soon after Merrill, including Bache & Co. and Dean Witter & Co. By 1974, according to data from the Center for Research in Security Prices LLC, several of them had dealt losses at least as devastating as Merrill’s.

In 1987, Jane and Joe Investor got invited to join in on the fun of Charles Schwab Corp.’s IPO, when roughly three million of the offering’s eight million shares were reserved for employees and customers of the firm.

Unlike Merrill, which was rescued from the brink of failure in 2008 when

Bank of America Corp.

bought the firm, Schwab went on to generate spectacular long-term performance. Over the full sweep of time since its 1987 IPO, Schwab is up more than 26,500%, or 17.9% annualized. The S&P 500 gained less than 3,500%, or an average of 11.3% annually.

However, Schwab went public in late September 1987. Only 18 trading days later, on Oct. 19, the U.S. stock market took its biggest one-day fall in history, plunging more than 20%.

Schwab’s stock got brutalized. In their first year, Schwab’s shares fell 59.1%. After three years, the market as a whole had gained 0.6% annually; Schwab’s stock lost an annualized average of 6.9%, according to CRSP.

How many of the original buyers in 1987 stuck around long enough to reap the giant rewards that came much later? That’s impossible to know, but the likeliest answer has to be: very few.

Every once in a while, outside investors in a brokerage IPO do well.

Goldman Sachs Group Inc.

began trading on May 4, 1999. If you’d bought Goldman stock in the IPO and held it ever since, you’d have earned 9.1% a year, versus 7.6% in the S&P 500, according to FactSet.

Yet Goldman was a giant then, as it is now; it was late to the IPO party because it had held on to its partnership structure for so many years. Most brokerage IPOs, like Robinhood’s, occur when the firms are younger and smaller.

That makes them typical. Companies selling shares to the public for the first time tend to be small, with minimal profits; they also require additional invested capital to sustain their rapid growth.

That’s what Savina Rizova, global head of research at Dimensional Fund Advisors, an asset manager in Austin, Texas, calls “a toxic combination of characteristics that points to low expected returns.”

On average, IPOs have severely underperformed seasoned stocks in the long run. And, history suggests, brokerages doing IPOs are better at timing the market for themselves than for you.

Write to Jason Zweig at [email protected]

More from The Intelligent Investor

The brokerage app Robinhood has transformed retail trading. WSJ explains its rise amid a series of legal investigations and regulatory challenges. Photo illustration: Jacob Reynolds/WSJ

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Smaller but More Frequent Catastrophes Loom Over Insurance Sector | Sidnaz Blog

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Less devastating than mega events such as earthquakes and hurricanes, these secondary perils, as they are known in the industry, happen relatively frequently and include hail, drought, wildfire, snow, flash floods and landslides.

Climate change and urban sprawl are driving a jump in secondary perils losses, said Tamara Soyka, Head Cat Perils EMEA at

Swiss Re.

Insurers and reinsurers, who traditionally focused on predicting big weather events that can cause widespread damage, are increasingly incorporating secondary-peril models.

Swiss Re, for instance, last year started considering pluvial—that is, heavy rainfall, similar to the recent European floods—flood zones when assessing risks.

A storm system over Europe dumped heavy rains in recent weeks, causing heavy floods in Germany, Belgium and parts of the Netherlands and Switzerland. The German Insurance Association on Wednesday said it expects insured losses could hit nearly $6 billion as a result of the flooding in North Rhine-Westphalia and Rhineland-Palatinate. It doesn’t yet have estimates for the damage in Saxony and Bavaria.

Before-and-after images show the extent of damage in German towns hit by the region’s worst flooding in decades. Visiting one inundated village, German Chancellor Angela Merkel called for more effort to combat future climate-related disasters. Photo: Satellite Image ©2021 Maxar Technologies

This year is expected to be the most damaging for the country since 2002, when insured storm damage totaled about €11 billion, equivalent to $12.98 billion, the association said. While mostly all residential buildings have windstorm and hail coverage, only 46% of homeowners have cover for heavy rain and floods.

Heavy rain, hailstorms and wind in Germany and Switzerland in June have already cost the industry an estimated $4.5 billion, according to analysts at Berenberg.

Analysts at

Moody’s Investors Service

in a note this week said German insurers “may find it challenging to protect homeowners against climate risk without significant price increases.”

Insurers paid out $81 billion for damages related to natural catastrophes in 2020, according to reinsurance giant Swiss Re, up 50% from 2019 and comfortably topping the $74 billion 10-year average for such losses.

Secondary peril events accounted for more than 70% of the $81 billion in natural catastrophe losses last year, according to the data.

Firms expected to take hits to their earnings from the European floods include Swiss Re,

Munich Re AG

and

Zurich Insurance Group,

according to analysts. Spokespeople for Swiss Re, Zurich and Munich Re declined to give estimates of the potential impact.

UBS Group AG analysts project $6 billion worth of losses for the industry, split into $2 billion for primary insurers and $4 billion for reinsurers.

SHARE YOUR THOUGHTS

Have you been affected by a natural disaster? What was your experience working with insurance companies? Join the conversation below.

The prospect of more intense weather has insurers rapidly updating their risk-assessment models and recalculating the price of insurance. Property insurers faced an estimated $18 billion bill for damage to homes and businesses from the long stretch of frigid weather in Texas and numerous other states, the equivalent of a major hurricane, The Wall Street Journal reported earlier this year.

In some cases, the increased frequency of extreme weather events can lead insurers to drop coverage altogether. Some insurers in California chose to not renew insurance policies for homeowners in high-risk areas for wildfires, the Journal reported in 2019. California wildfires the prior two years had killed dozens of people and racked up more than $24 billion in insured losses.

Analysts say the losses from the European flooding will be manageable for the industry. While they may dent quarterly or yearly earnings, they won’t have a seismic effect on their capital. If the coming U.S. hurricane season is a normal one, that will likely crimp earnings further for some.

Flooding in Altenahr, Germany. In some cases, the increased frequency of extreme weather events can lead insurers to drop coverage altogether.



Photo:

friedemann vogel/Shutterstock

The Euro Stoxx Insurance index is up 7.6% this year, trailing the broad Euro Stoxx 600 stock-market index, which is up nearly 15%. The insurance index has fallen 6.4% since March 30, which Berenberg analysts attribute to fears of potential dividend cuts due to recent natural catastrophes.

The costs of reinsurance in Asia and the U.S. went up over the past couple of years owing to hurricanes and wildfires, said Berenberg analyst Michael Huttner. But prices in Europe didn’t increase significantly over that period. The floods will likely help catastrophe pricing increase, said Mr. Huttner.

Will Hardcastle, an analyst at UBS, says this year is shaping up to be the fifth consecutive year that natural catastrophe losses will be above reinsurers’ budgeted level.

“The last five years would suggest you’re not getting appropriate pricing for it,” he said. “It’s always difficult to determine whether the trend is short term. Now at this point you have to be thinking it’s more structural” because of climate change, he said.

Write to Julie Steinberg at [email protected]

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Robinhood IPO Is No Giveaway | Sidnaz Blog

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Robinhood Markets likes to give away free shares to attract new customers. Its public offering to investors is a different matter.

The offering bears some similarity to recent IPOs such as

Coinbase Global

and

Rocket Cos.,

which made their debut in the midst of crypto and mortgage booms, respectively. Investors had the challenge of trying to chart out a normalized earnings and revenue path. So far, neither of those prior examples have worked out for initial public investors.

Robinhood derives the vast majority of its revenue from trading by its customers, including in cryptocurrencies like Dogecoin. In this topsy-turvy market, it will be quite difficult to forecast what that activity level looks like a year from now. Plus, its primary trading revenue source is payment for order flow, one of the most hotly debated topics in finance and in Washington.

Amid that uncertainty, there is one measure that cuts through a lot of the noise: how much an investor would be paying at the IPO valuation per funded account. That is a way to benchmark Robinhood to established peers in the retail brokerage business.

At the proposed IPO price range set on Monday, a funded Robinhood customer account is worth about $1,500 to $1,600. Contrast that to a long-term average of about $2,000 for E*Trade over the past 15 years, before it was acquired for about $1,800 by Morgan Stanley, according to figures compiled by Christian Bolu of Autonomous Research. Charles Schwab, a much broader wealth- and asset-management business, has traded around $3,600 historically, and is closer to $4,000 today.

Vlad Tenev, co-founder and chief executive officer of Robinhood Markets. It will be Robinhood’s broad appeal that is most vital to justifying the IPO price.



Photo:

Daniel Acker/Bloomberg News

So that multiple isn’t by itself wild and suggests that, even if Robinhood has to alter its revenue model, it could still be a viable business just by virtue of the number of customers it has. But it also is giving Robinhood credit for a lot of growth it has yet to achieve. Consider that Robinhood’s typical funded account had about $4,500 worth of assets in custody at the end of the second quarter. The established retail brokers’ typical accounts are well into the six figures.

Yes, Robinhood’s accounts on average trade more. But overall, Robinhood still generates much less revenue out of its customers, in part because they are smaller. In the first quarter, average revenue per user was $137 at Robinhood. By contrast, TD Ameritrade and E*Trade were generating more than $500 around the time they were acquired, according to Autonomous. Charles Schwab was above $600 in the first quarter.

So the per-account price implies that Robinhood will either far better monetize its customers in the future, grow them at a much faster rate, or some combination thereof. Faster growth is much more likely, based on recent history: Schwab added 1.7 million net new brokerage accounts in the second quarter, while Robinhood added 4.5 million funded accounts on net. “Expanding the universe of investors has been, and we expect will continue to be, a significant driver of our market-leading growth,” Robinhood writes in the IPO prospectus.

Meanwhile, per-user revenue trends are already slowing. Preliminary second-quarter results given by Robinhood imply a drop-off in average revenue per user to under $120, with Robinhood noting that, while cryptocurrency and options trading are growing, equities trading activity in the second quarter was lower than it was a year ago.

The company can build on other revenue streams, which include margin loans to customers and cash management. But low pricing is a vital part of the company’s mission to expand its customer base. The company is still building out its securities lending platform, which could generate incremental revenue. In the face of slowing trading activity, though—and that includes crypto in the third quarter, according to the company—it is hard to bank on significant per-user revenue growth in the near future.

So it will be Robinhood’s broad appeal that is most vital to justifying the price. That makes the IPO itself a pivotal moment. Robinhood will be distributing potentially over 20 million shares to its own customers via its own platform. If the deal doesn’t perform well out of the gate for any reason, that could frustrate some of its most engaged customers.

Investors might have to wait for the dust to settle on this offering before thinking about nabbing any Robinhood stock for themselves.

The brokerage app Robinhood has transformed retail trading. WSJ explains its rise amid a series of legal investigations and regulatory challenges as it looks forward to its IPO. Photo illustration: Jacob Reynolds/WSJ

Write to Telis Demos at [email protected]

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Paytm and Zomato IPOs Point to Coming Wave of Indian Tech | Sidnaz Blog

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NEW DELHI—India is gearing up for tech IPOs, including two worth more than $1 billion, as startups look to tap a stock market that has proved resilient despite Covid-19.

The initial public offerings reflect the maturing of a generation of e-commerce and digital-economy companies, bankers say, many of which have grown rapidly during the pandemic as well-off city-dwellers turn to them when purchasing products from milk to medicines.

On July 16, the operator of the Paytm digital-finance app, One97 Communications Ltd., filed a prospectus for what would be India’s largest IPO in local-currency terms. The group offers services such as a mobile wallet, loans and stock-trading, and is backed by

Jack Ma’s

Chinese financial-technology giant Ant Group Co. One97 aims to issue new and existing shares worth a total of up to 166 billion rupees, the equivalent of $2.23 billion.

Other companies considering IPOs include digital-payments platform One MobiKwik Systems Ltd., which filed its prospectus earlier this month, and logistics and supply-chain-services provider Delhivery Pvt., according to a company spokeswoman. Online cosmetics seller Nykaa E-Retail Pvt., API Holdings Pvt., the parent company of online pharmacy PharmEasy, and PB Fintech Pvt., the parent of insurance aggregator Policybazaar.com, are also considering listings, according to people familiar with their plans.

“This is the first set of these companies coming to the public market” in India, said

Kaustubh Kulkarni,

the head of investment banking for India at the local unit of

JPMorgan Chase

& Co.

Demand for the shares is likely to be strong, given the companies’ brand recognition, said Mr. Kulkarni, who is also the bank’s co-head of investment banking for South and Southeast Asia. “Most of these companies are offering products, services or capabilities which millions, if not hundreds of millions, of customers are utilizing on a day-to-day basis,” he said.

Last week investors placed orders worth 38 times the shares being offered by Zomato Ltd., India’s answer to

DoorDash Inc.

The food-delivery group raised around 94 billion rupees, the equivalent of $1.26 billion, and its shares are due to start trading on July 27.

Some market-watchers say Indian tech has plenty of room to grow, as more consumption shifts online. Earlier-stage investors have poured about $16 billion into Indian startups this year, creating 16 new unicorns—young private companies valued at $1 billion or more—according to data firm Venture Intelligence.

India’s unicorn population will rise to 150 by 2025 from 60 now, predicted

Gaurav Singhal,

the head of India consumer technology at

Bank of America Corp.

’s investment-banking arm. Many will eventually look to float, he said, translating into a big increase in market capitalization.

“India will see $300 billion to $400 billion of market-cap creation in the internet ecosystem in the next five years,” said Mr. Singhal.

The deals already under way show how India’s financial sector has been swept up in an international boom, even as the country records more than 30,000 new Covid-19 cases a day, among the highest daily counts in the world.

Already this year, India has hosted a rush of IPOs—joining a global surge fueled in part by tech companies from elsewhere in Asia, such as China’s

Kuaishou Technology

and South Korea’s

Coupang Inc.

The operator of the Paytm digital-finance app filed a prospectus for what would be India’s largest IPO in local-currency terms.



Photo:

Dhiraj Singh/Bloomberg News

India’s 22 IPOs in the first six months of 2021 brought in $3.7 billion, a record half-year haul, according to Prime Database Group, a research firm in New Delhi. Shares in some recently listed companies are trading at twice their IPO price.

At the same time, Indian stock indexes have soared as investors bet on big listed companies. The S&P BSE Sensex has hit a series of record highs, most recently on July 15, and international investors have poured about $7.7 billion into Indian shares this year, official data shows.

Millions of individual Indian investors are trading stocks for the first time, again mirroring trends seen in the U.S. and some other markets.

Harpreet Singh,

a 23-year-old from the northern city of Pathankot, started dabbling in the market last year while waiting for the chance to study abroad.

Relying on advice from videos on YouTube and Telegram, Mr. Singh said, he has lost money at times—but still finds trading stocks more appealing than getting a job in his hometown, where he said private-sector work pays barely 10,000 rupees a month, equivalent to about $134.

“If you have knowledge of stocks,” he said, “then in three to four months you can earn hundreds of thousands of rupees, sitting at home.”

Write to Shefali Anand at [email protected]

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Baby-Food Maker Little Spoon Raises $44 Million | Sidnaz Blog

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Little Spoon Inc., a direct-to-consumer baby-food company targeting millennial parents, raised $44 million in a venture-capital funding round.

The so-called Series-B financing round values the company at roughly $200 million, people familiar with the matter said. It was led by Valor Equity Partners.

Little Spoon ships organic purées, toddler meals and vitamins to customers, bypassing grocery stores and other distribution outlets. Last year, Little Spoon launched Plates, its meals for toddlers and bigger children. The company also offers a virtual community that provides caregivers with a platform to connect and interact.

“Packaged baby food hasn’t evolved in line with the modern parent,” Chief Executive

Ben Lewis

said in an interview. “It was this glaring void that we couldn’t ignore,” added Mr. Lewis, who co-founded Little Spoon in 2017 with

Lisa Barnett,

Michelle Muller

and

Angela Vranich.

Little Spoon is one of several upstart baby-food companies to jump aboard the organic trend, aiming to attract the growing demographic of millennial parents. Recent reports of high levels of toxic metals in several top baby-food brands opened the door for new competitors focused on safety.

Co-founders Lisa Barnett, Angela Vranich, Michelle Muller and Ben Lewis.



Photo:

Little Spoon Inc.

Little Spoon also emphasizes that it is a mission-driven company. During the Covid-19 pandemic, it has donated more than $100,000 of its products to food pantries and introduced a program to supply the products at cost to first responders and anyone who experienced pandemic-related financial hardship, according to the co-founders.

“It’s exactly the kind of company we like to invest in,” said

Jon Shulkin,

a board member and partner at Valor Equity Partners, which also invested in Little Spoon during its Series A financing round. “They’re solving a problem and doing good work.” He said he is optimistic about the company’s growth prospects because there are “always ways to scale” for makers of baby and children’s food.

Little Spoon said it is growing quickly, delivering seven million meals since the onset of the pandemic out of the 15 million delivered since the company’s founding. Large baby-food makers have had to adapt as some parents make their own and others embrace baby-led-weaning, in which infants are served pieces of real food rather than purées.

While overall food sales surged during pandemic-related shutdowns around the U.S., the baby-food segment didn’t receive the same boost, according to market-research firm IRI. Sales of baby food dropped in the spring of 2020, and though they have climbed since, growth has continued to lag behind the broader food segment.

Write to Corrie Driebusch at [email protected]

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Space Race, Nasdaq, IBM, Nvidia: What to Watch When the Stock | Sidnaz Blog

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To the moon! Well, not quite, but into space at least today for

Jeff Bezos,

the billionaire baron of ecommerce. Also not going to the moon is

Amazon


AMZN -0.67%

stock, though it is 0.4% up premarket on Tuesday morning.

  • One reason for Mr. Bezos’s rocket ride is the more earthly goal of winning government contracts for the kind of less thrilling scientific projects the provide reliable revenue. His Blue Origin company is playing catch-up with Elon Musk’s SpaceX.
  • Mr. Musk’s electric vehicle maker

    Tesla,


    TSLA 0.31%

    is getting a bit of a boost Tuesday morning ahead of the open, rising 1% premarket. It is also gaining more attention on the message boards among day traders, according to Topstonks.com. The company reports earnings next Monday and tends to see its stock rise in the days ahead as investors start hoping for exciting announcements.

  • In the wider markets, U.S. stock futures are trending higher ahead of the open following Monday’s broad selloff. S&P 500 futures are up 0.5%, while Dow futures are up 0.6%. Nasdaq-100 futures are up 0.4%
  • Nasdaq the company, not the index, is itself rising premarket, up 1%, after The Wall Street Journal’s exclusive that it will spin out its Private Market for shares in start-ups that trade among some investors before an initial public offering. The business will go into a standalone joint venture company and get investment from three Wall Street banks and SVB Financial Group, a tech specialist bank.
  • Nvidia


    NVDA 15.18%

    is up 0.8% on large volumes following a 15% rise Monday. The shares are up nearly 80% over the past year, putting the chip maker into the top 10 list of U.S. public companies. It also executed its four-for-one stock split overnight, which has given some investors more ways to trade the stock-performance.

  • International Business Machines


    IBM -0.71%

    is up 3.4% ahead of the open on Tuesday after turning in decent second-quarter numbers Monday after the close. The computing group’s efforts to refocus on cloud-based computing and spin off its old-fashioned IT services business is winning fans among investors. At the same time, it has benefitted from companies beginning to invest again as the economy reopens.

IBM reported earnings on Monday..



Photo:

sergio perez/Reuters

Chart of the Day
  • Stocks, commodities and other financial markets took a stumble Monday on growing concerns about the strength of the post-Covid-19 global recovery.

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UBS Profit Jumps on Wealth Management Boom | Sidnaz Blog

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A pedestrian passes a UBS branch in Zurich earlier this month.



Photo:

Stefan Wermuth/Bloomberg News

UBS Group AG


UBS -2.22%

posted better-than-expected second-quarter earnings from strong client activity in the world’s buoyant markets.

On Tuesday, Switzerland’s biggest bank said net profit jumped to $2 billion from $1.23 billion a year earlier, outpacing analyst expectations of $1.34 billion. It said wealth clients traded more, pushing transaction revenues 16% higher from a year earlier, and added that recurring fees were 30% higher on their existing trades and products.

At UBS’s investment bank, deal advice for mergers and acquisitions and other corporate transactions pushed global banking revenue 68% higher, helping to offset a 14% decline in market-trading income.

UBS said markets revenue would have been flat but it took an additional $87 million hit the quarter from the late March default by family office Archegos Capital Management. UBS was one of about a half-dozen banks that lent to Archegos to take large, concentrated positions in stocks. The Swiss bank said in April that it had lost $861 million when exiting the trades, most of it booked in the first quarter.

UBS helps the world’s rich manage their wealth and competes with Wall Street banks in investment banking.

On Tuesday, Chief Executive

Ralph Hamers

said wealth clients are investing more with the bank in private markets and in separately managed accounts, adding that they are also freeing up liquidity as a buffer against unforeseen events by refinancing assets and borrowing from the bank.

He said momentum is on UBS’s side and that its strategic choices are paying off. The bank refocused around wealth management a decade ago and pared back its investment bank. It has been less in the limelight than its smaller domestic rival,

Credit Suisse

Group AG, which lost more than $5 billion from the Archegos affair this year.

Write to Margot Patrick at [email protected]

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William Ackman Needs a Soothing Pitch After Universal Music Drama | Sidnaz Blog

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Pershing Square Tontine Holdings had planned a $4 billion purchase of a 10% stake in Universal Music Group.



Photo:

Bing Guan/Bloomberg News

William Ackman’s

blank-check company picked a good target but a poor deal structure. To keep investors happy, both need to be right on a second attempt.

On Monday,

Pershing Square Tontine Holdings


PSTH -1.45%

$4 billion purchase of a 10% stake in Universal Music Group was called off. The world’s biggest record label will be spun off from its French owner

Vivendi

and listed on the Amsterdam stock exchange in September. The SPAC’s investors were offered early exposure to an attractive business at a low valuation.

The deal’s complexity has been part of its undoing. After spending 72% of the SPAC’s cash on the Universal stake, $1.6 billion would be left over for another acquisition. Investors also would get warrants to buy into an additional blank-check deal. The Securities and Exchange Commission, which is scrutinizing SPAC deals more closely these days, said that as more than 40% of its assets would be in a minority stake, Pershing Square Tontine risked becoming an unregistered investment company.

The SPAC’s workaround caused a headache for investors. The Universal shares were to be locked up in a trust for four months, which would trigger a fall in Pershing Square Tontine’s share price—bad news for a sizable chunk of the SPAC’s shareholders who bought the stock on margin. The final nail in the coffin was the SEC’s opinion that the Universal stock purchase wouldn’t meet the New York Stock Exchange’s SPAC rules.

Mr. Ackman still gets his hands on the record label because the

Pershing Square Holdings


PSH -4.85%

hedge fund will buy the stake instead. This way, though, he will tie up a lot more capital in Universal than initially planned. Under the original deal, his fund would have owned a 3% stake but that number could now be closer to 10%.

More pressing is the need to pacify institutional investors and family offices that liked the idea of a stake in Universal and missed out. The deal also was supposed to showcase what the hedge-fund billionaire could accomplish with future blank-check vehicles. It hasn’t been a good start.

Pershing Square Tontine Holdings’ shares are down almost one-fifth since the Universal deal was announced and now trade just in line with their net asset value. Its founder has learned the lesson to keep things simple; the SPAC will do a conventional deal next, according to an investor letter Monday. Investors will be harder to impress the second time around.

Private companies are flooding to special-purpose acquisition companies, or SPACs, to bypass the traditional IPO process and gain a public listing. WSJ explains why some critics say investing in these so-called blank-check companies isn’t worth the risk. Illustration: Zoë Soriano/WSJ

Write to Carol Ryan at [email protected]

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Nvidia Stock’s Surge Makes Chip Maker 10th-Biggest U.S. Listed | Sidnaz Blog

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Nvidia chips’ parallel-computing capabilities make them better than rivals’ for artificial-intelligence performance and mining cryptocurrencies.



Photo:

nvidia corp/Reuters

The post-pandemic boom in the semiconductor business has powered

Nvidia Corp.


NVDA -4.25%

into the top 10 U.S. public companies, joining the likes of Apple Inc. and JPMorgan Chase & Co.

Shares of the Santa Clara, Calif., firm have risen nearly 80% over the past year, giving it a market value of around $453 billion. That is more than rivals

Intel Corp.

and

Broadcom Inc.

combined.

Nvidia makes processors that power gaming and cryptocurrency mining. Chip shares have risen in part thanks to a pandemic-induced global shortage of semiconductors that has driven up the prices of everything from laptops to automobiles.

One reason for Nvidia’s outperformance, analysts say, is that its chips’ parallel-computing capabilities make them better than rivals’ for artificial-intelligence performance and mining cryptocurrencies. Nvidia’s graphics processors are used for mining ethereum and the cryptocurrency’s value has soared this year, even after a recent correction.

That surge has exacerbated the shortage of gaming chips. Nvidia plans to sell cards aimed at the crypto market and has employed technical adjustments to make gaming processors less useful to miners. Analysts also expect Nvidia to get a boost from tech and autonomous-vehicle companies using its chips to navigate traffic or track online behavior.

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“The company is the biggest and best supplier of parallel computing,” said

Ambrish Srivastava,

analyst at BMO Capital Markets. “It’s hard to compete against that.”

While Nvidia has a leg up in the data-center industry, competitors are catching up, analysts said. The recent slide in crypto also could spur miners to dump their chips on the secondary market, as happened when a previous ethereum skid hit revenue in 2018.

A global chip shortage is affecting how quickly we can drive a car off the lot or buy a new laptop. WSJ visits a fabrication plant in Singapore to see the complex process of chip making and how one manufacturer is trying to overcome the shortage. Photo: Edwin Cheng for The Wall Street Journal

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