The One-Year Anniversary of History Repeating Itself... and What's Next for Robinhood

Last Friday marked the one-year anniversary of the meme stock phenomenon hitting the big time... When members of the WallStreetBets group on online forum Reddit started bidding up shares of left-for-dead video game retailer GameStop (GME) last January, it led to an unlikely 1,700% rise in the shares. When trading app Robinhood Markets (HOOD) temporarily […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] The One-Year Anniversary of History Repeating Itself... and What's Next for Robinhood By Berna Barshay Last Friday marked the one-year anniversary of the meme stock phenomenon hitting the big time... When members of the [WallStreetBets group on online forum Reddit started bidding up shares of left-for-dead video game retailer GameStop (GME) last January]( it led to an unlikely 1,700% rise in the shares. When [trading app Robinhood Markets (HOOD) temporarily restricted purchases of GME shares]( fury ensued... And the stock became national news, [of interest even to those who typically pay zero attention to the stock market](. It started out as a "get rich quick" scam... and one that we have seen before. As my colleague Whitney Tilson noted last week in his daily e-letter... This story in Tuesday's Wall Street Journal, "Reddit's WallStreetBets Was the GameStop Kingmaker, but Longtime Users Say the Thrill Is Gone," reminds me of the early days in my investing career during the Internet bubble in the late 1990s, when the Motley Fool website's Rule Breaker portfolio was pumping growth stocks like Iomega and America Online. This attracted a wave of inexperienced retail investors, who gathered on the new, primitive online message boards of that era and drove these stocks to the moon, which, of course, attracted more of the same type of investors looking to make a quick buck. But what started as a money grab turned into something more... at least in the mind of the participants. It became a kind of highly ironic Occupy Wall Street, given that those protesting a capital markets system they viewed as rigged also continually glorified the spoils they hoped to enjoy when they won the war and conquered against their oppressors. The crowd in meme stocks like GameStop and movie theater chain AMC Entertainment (AMC) doesn't want to topple capitalism... They want to topple the people who are winning at capitalism and emerge financially enriched from dethroning them. A New York Times article that ran this weekend marking the anniversary, aptly titled "Buy GameStop, Fight Injustice, Just Don't Sell," notes... For a large number of individual investors, the stock market has become the battleground on which they join forces to right perceived wrongs and fight the powerful. To illustrate this point, the Times spoke with Mat Bowen, a former small-town pastor who quit to become a full-time trader, "convinced he was joining a fight against financial injustice." Bowen, who has a master's degree in divinity from the Princeton Theological Seminary, explained... The reason I am still in this, and the reason I am willing to ride these stocks to zero, is for my fellow citizens. The battle of good versus evil is not just limited to the walls of a church or a synagogue or a mosque. If you haven't encountered people who feel this way firsthand, it might seem like the Times is making this up or found some extreme outlier... but there are a ton of people out there like Mat Bowen. --------------------------------------------------------------- Recommended Links: [World's richest man orders 100k units of radical new technology]( CNBC reports that the world's richest man has ordered 100,000 units of a technology that could soon change his business and your life. Legendary investor Whitney Tilson [explains the full story and his No. 1 stock to profit (including ticker symbol) here](. --------------------------------------------------------------- [LAST CHANCE – Prediction Summit 2022]( During our historic event, four living financial legends took the stage for the first time ever... And revealed their biggest predictions for 2022 (as well as their No. 1 stocks). This is your last chance to witness history. [View it now while it's still online](. --------------------------------------------------------------- You can find the traders who want to overthrow the financial system on the Reddit message boards and Twitter (TWTR)... While the GameStop and AMC bulls leave an ample emoji-laden trail in their posts and tweets, the best place to get a sense of what's going on is in the nightly Spaces hosted on social media app Twitter. Spaces are live audio chats – a kind of virtual town hall to discuss these popular stocks. Because of my longtime interest in the movie theater stocks and my amazement and shock over people so egregiously overpaying for AMC, I started dropping in on the nightly AMC Space, hosted by some of the most prominent "Apes," the self-determined nickname of the AMC crowd. The first time I tuned into an AMC Space, I found it jaw-dropping on many fronts. The engagement and duration were shocking... In 2021, these Spaces often drew well more than 1,000 participants, and some dragged on for six hours or more. But beyond the length and crowds, the truly astonishing things were the passion and commitment to the "cause." Some of the big ideas constantly repeated... the desire to cause financial pain to key players on the other side of the trade – specifically hedge funds Citadel and Melvin, and their principals, Ken Griffin and Gabe Plotkin... constant talk of the "movement"... repeated discussions of the "community" and what the community norms should be and how Apes could be supportive to each other and the group's goals. The dream of the underdog sticking it to the man (and possibly making a fortune in the process)... It's not a new story. This is the tale of David versus Goliath... It's the French Revolution... It's the story of upstarts like electric vehicle maker Tesla (TSLA) and home rental app Airbnb (ABNB), assuming they manage to eclipse the incumbents eventually in market share, as they already have in market capitalization. But when they start talking about a "community," that's where it gets weird for me. In the past, I've sometimes owned stocks for years. When they were smaller companies, I might have owned a meaningful stake in the company, and I saw the same institutional investors regularly at company-hosted events or conferences. They were fellow shareholders... and these colleagues from other firms became fond acquaintances or sometimes even friends. But a "community?" Not in a million years would I ever have called my fellow shareholders that. The false intimacy of Internet friendship paired with a so-called social mission, which, if successful, just happens to have the notable byproduct of making the revolutionaries really rich, felt a little cult-like. Then the straight-up deification of AMC CEO Adam Aron, even as [he dumped tons of his own shares]( convinced me this really is a cult for some people. Check out this tweet... Source: Twitter/@LucrativeLuApe Really... not Apple's (AAPL) Steve Jobs (former)... Amazon's Jeff Bezos (former)... Berkshire Hathaway's (BRK-B) Warren Buffett... JPMorgan Chase's (JPM) Jamie Dimon... Tesla's Elon Musk... Best Buy's (BBY) Hubert Joly (former)... Nvidia's (NVDA) Jen-Hsun Huang... Netflix's (NFLX) Reed Hastings... Disney's (DIS) Bob Iger (former)... Costco Wholesale's (COST) Jim Sinegal (former)... Starbucks' (SBUX) Howard Schultz (former)? Got it! Adam Aron – best CEO of the 21st century! Or how about this excitement – and the number of likes! – for a follow back... Twitter: @EduardBrichuk Layer on a whole bunch of conspiracy theories about market manipulation that I don't think really exist... and yup, the whole thing got really weird. Weird enough for me to joke about it being Financial QAnon on a day when AMC shares were down 9% this month... And apparently, I'm not the only one using that phrase... This post sums up what has been happening in AMC and other meme stocks quite well... Twitter: @SassiItalyTours The sad thing here is that the individual investors owning these wildly overvalued meme stocks like AMC and GameStop will probably lose a lot of money. It's already happening, with AMC and GME shares down 41% and 27% this month, respectively. Even if you go back a year, AMC shareholders are only up 20%... and GME shareholders are down 52%. Wouldn't it have been better not to try to change the world but instead just buy great companies like tech giants Alphabet (GOOGL) or Microsoft (MSFT)? It would have been less work, less of an emotional whirlwind... and an investor would have made 47% and 34% in one year, respectively. While I empathize with the inclination to fight injustice in the financial system – which is very real – it would have been much more productive just to buy some great stocks and redirect that energy to proven and demonstrable problems, like the insane multiple of what CEOs make versus regular workers. For the fiscal year 2020, AMC burned more than $1 billion in cash as theaters were shuttered for much of the year, and AMC ticket takers and concession stand operators – some of whom make less than $10 an hour – were furloughed or fired. Meanwhile, CEO Adam Aron saw his pay more than double to $21 million. Might I suggest the community in this movement is fighting the wrong war... Of course, there was no shortage of institutions looking to make a buck egging on this misguided revolution... Many cheerleaders and charlatans were pushing everyday investors into this scam... but none more than Robinhood. I've been negative on HOOD shares since the company's initial public offering ("IPO") last summer. [In an essay last August]( I did not mince my words when I wrote: "Even if this IPO manages to "un-bust" itself, stay away from HOOD shares." I also warned my followers on Twitter... While my advice was a little early – the stock roughly doubled right after my tweet and essay – it certainly didn't stay up there very long... Now HOOD shares are down 63% from when I said to avoid them in Empire Financial Daily... and they are down 80% from that short-lived spike to $70. Robinhood reported dismal earnings last week... The company lost $423 million on $363 million of revenue in the fourth quarter. Revenues were down 36% from two quarters ago. Monthly active users ("MAU") were down 8% sequentially from the prior quarter. The users that stayed are also spending much less: average revenue per user in the fourth quarter was just $64, down more than 50% from the $137 posted in the first quarter during the height of the GameStop squeeze. I'm not sure I would short shares of Robinhood here... With a market cap of around $12 billion, it's not inconceivable that some big financial institution decides to buy the company to gain access to the millennials and Gen Z cohorts that use the app. But Robinhood's credibility took a beating from its decision a year ago to halt purchases of GME shares... and its reputation never fully recovered. It's also unclear how active its customers will be going forward if it becomes harder to make money in the market. Robinhood still generates substantial revenues from payment for order flow – a practice that the Securities and Exchange Commission ("SEC") is currently reviewing and could limit or ban... And it derives its commission revenue from primarily speculative areas: 49% from options trading and another 30% from cryptocurrency trading. Robinhood is leaning hard into expanding its crypto functionality for 2022. But retail investor speculation may be on the way out... those crazy AMC Spaces that used to regularly rustle up almost 2,000 people usually top out with fewer than 200 these days. Unless Robinhood finds a suitor... this company could be in a lot of trouble. So I still wouldn't buy HOOD shares... While there is some possibility of quick gains in a buyout, without one, there could be substantial downside from here. With stock prices down so much for so many high-quality companies, why go sifting through the dreck hoping someone else might buy it... that goes for AMC and GameStop, as well Robinhood. In the mailbag, more reactions to my essay on nuclear power prompted an abundance of thoughtful reader feedback... Are there any Robinhood users or shareholders who want to offer a bullish counter case for HOOD shares? Or are there any AMC or GME bulls who want to tell me what I am missing? Do you think the meme stonk phenomenon is dead for now… or is it merely taking a breather? Share your thoughts in an e-mail by clicking [here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Berna). "Agreed! Especially with Molten Salt Thorium Reactors, smaller-scale modular plants, and other such solutions. "I do think we need to invest in rapid [research and development] (R&D) to finalize a rapidly completed, packaged nuclear plant design, with expedited permitting. There are some great illustrative and discussion YouTube videos on these topics, such as from 'Just Have a Think,' 'Undecided,' 'Two Bits Engineering,' as well as more in-depth sources. One video features an innovative and impressive design by Rolls-Royce (RR.L), which reportedly makes the small nuclear reactors used in British warships. (That one might not be for thorium but just uranium.) "Climate change mitigation cannot await – and no one knowledgeable recommends a single 'silver bullet' solution – but rather an 'all of the above solution.' I believe nuclear will be needed to meet Europe's winter heating demands securely, without subjugation from a gas-supplying Russia. "Energy efficiency retrofits are the most overlooked, presently available solutions with very fast [return on investment] ("ROI") in many cases. Carbon dioxide ("CO2") reductions, peak power plant load reduction, through locally installed upgrades that need local skilled laborers and provide a rapid return on investment... Candy for everyone! ... regardless of political or climatological ideology. "And regenerative agricultural methods can greatly benefit our food supply while sequestering huge amounts of CO2 into our otherwise increasingly depleted soils." – Paco A. "I am still in the camp of those who reject nuclear power. "1. No nuclear facility has been built in the U.S. in the last 25 years. The last nuclear reactor to begin operations, was completed in 1996, [and] took 24 years to build. They never come in at budget, and there are numerous safety regulations that must be met. Then, the private companies building them want a guarantee (paid for by taxpayers) if the project does go over budget. Moreover, you can't find an insurer that is willing to insure the construction and operation of a nuclear plant these days. "2. There is still the problem of what to do with the radioactive waste. No, it is most definitely NOT a clean power source. "3. France currently gets 70% of its energy from nuclear reactors, but they are reducing that percentage down to 50% by 2025. Why? "4. Germany's reliance on nuclear power is down to 10%. Ever since the Chernobyl and Fukushima nuclear accidents, they have seen the writing on the wall and are using other sources for power. "5. Coal silo scrubbers are cheaper than building a nuclear plant 10,000 times over. Until we can get renewables to provide the vast majority of our energy, subsidize the scrubbers. "6. And lastly, focus on energy efficiency! Seems to me there's a lot of money to be made there." – Charlotte H. Regards, Berna Barshay January 31, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](