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Robinhood starts trading Thursday. Here’s everything investors need to know

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Robinhood is scheduled to hit the markets Thursday in one of the most highly anticipated initial public offerings of the year.

The stock trading app will trade on the Nasdaq under ticker HOOD, priced at an expected $38 to $42 per share. Robinhood is looking to sell 55 million shares at that range to raise as much as $2.3 billion.

At the top end of the range, Robinhood would be valued at $35 billion, and the co-founders would each own stakes worth about $2.8 billion. Coinbase, which went public in April, has a fully diluted market capitalization of $65 billion. The apps are among the most popular places for consumers to by cryptocurrencies, which have surged in trading in 2021.

Robinhood, whose longstanding mission is to democratize investing, is seen as the main gateway to the markets for young investors. 

The free-trading pioneer has experienced explosive growth in the past few years amid a boom in retail trading. The company estimates its 18 million retail clients and more than $80 billion in customer assets in the first quarter ballooned to 22.5 million users and more than $100 billion in the second quarter of 2021.

Robinhood is the third-largest brokerage based on number of funded accounts, behind Fidelity and Charles Schwab, which purchased TD Ameritrade last year.

Robinhood went after a largely underserved demographic in the retail investing space, providing a significant runway for growth, according to Autonomous Research analyst Christian Bolu. The Menlo Park, California-based app pioneered free trading and forced the brokerage industry to drop commissions in 2019.

“Robinhood serves the [approximately 84 million] U.S. households with [less than $100,000] in wealth that existing retail brokers have largely ignored,” Bolu wrote in a research report. “We size the money app opportunity at [about $120 billion] in revenues implying Robinhood has a significant runway for growth.”

While Robinhood was successful in acquiring clients who were largely left behind by legacy brokerages, their account balances are lower compared with peers, which should give Robinhood a lower valuation, according to MKM Partners.

Robinhood’s IPO pricing implies a roughly $1,350 valuation per active and funded account, based on its estimated 22.5 million accounts as of the second quarter of 2021.

This compares with $2,500 per account for E-Trade, which was purchased by Morgan Stanley, and $2,200 per account for each TD Ameritrade account, based on Schwab’s purchase price, according to the MKM analysis. Autonomous Research estimates Schwab accounts are worth more than $3,600 per funded account.

An unorthodox IPO

Robinhood’s longstanding mission is to lower the barrier to enter the world of finance, and its IPO has been nothing but on brand.

The stock trading app is reserving 20% to 35% of its IPO shares for its own clients, which CEO Vlad Tenev said he expects will be one of the largest retail allocations ever.

IPO shares have historically been set aside for Wall Street’s institutional investors or high-net-worth individuals. Retail traders typically don’t have a way to buy into newly listed companies until those shares begin trading on an exchange, so they miss out on the pop.

However, some analysts said Robinhood may be leaving itself exposed to the whims of the very amateur investors it’s trying to help.

“There’s no doubt that retail traders are much more fickle. The more [Robinhood] sells to retail, the more susceptible they will be to some sort of Reddit super squeeze type of activity,” Greg Martin, managing director and co-owner at Rainmaker Securities, told CNBC earlier this month.

Robinhood’s loose lock-up structure is also unconventional. Employees will be able to sell 15% of their shares immediately after the public debut, compared with the traditional six-month lockup period. After three months, investors can sell another 15%.

Robinhood even had a public virtual roadshow over the weekend, an event historically reserved for investment banks and high-net-worth individuals. The company’s executives invited everyday investors to join the call and spoke on topics from a pool of 2,000 questions.

David Erickson, a finance professor at the University of Pennsylvania’s Wharton School, said investment banks typically don’t like novelty in the IPO process. However, Robinhood is such a high-profile IPO that it’s worth it for the underwriters. Goldman Sachs and JPMorgan are the lead bankers on the deal.

Robinhood is the latest company to change the structure of public offerings. The traditional IPO is rapidly becoming a thing of the past amid the rise in direct listings and special purpose acquisition companies.

I am betting that several of these institutional investors will take a pass especially at a significant valuation step-up from just a few months ago,” Erickson said.

Robinhood will likely be the seventh IPO of 2021 to raise more than $2 billion. The six prior ones are trading below their IPO prices.

Robinhood co-founders Tenev and Baiju Bhatt each are planning to sell about $50 million worth of shares in the IPO. Top investors include DST Global, which owns about 9% of Robinhood pre-IPO. Index Ventures has roughly 13%, NEA has about 13% and Ribbit Capital has approximately 10% of pre-IPO ownership.

Trading slowdown and regulatory risks

Robinhood warned in its updated prospectus that the brokerage could see a slowdown in its epic growth as the retail trading boom cools.

“We expect our revenue for the three months ending September 30, 2021, to be lower, as compared to the three months ended June 30, 2021, as a result of decreased levels of trading activity relative to the record highs in trading activity, particularly in cryptocurrencies, during the three months ended June 30, 2021, and expected seasonality,” Robinhood said in an amended prospectus released last week.

Robinhood, which offers equity, cryptocurrency and options trading, as well as cash management accounts, benefits from more speculative trading practices from its clients. Options trading makes up about 38% of revenue, while crypto is 17% of revenue. Plus, margin and stock lending trading levels have been elevated in 2021.

“Since the lion’s share of Robinhood’s revenue is derived from transactional activity there is a risk that a market downturn or even less turnover could lead to top-line pressures,” said Peter Hobson, senior analyst at Third Bridge. “The last time there was similar gangbusters retail trading growth was in early 2000, which then saw a material decline in retail trading activity after the pop of the dot-com bubble.”

Robinhood also said it anticipates the growth rate of new clients will be lower in the third quarter of 2021 from second quarter “due to the exceptionally strong interest in trading, particularly in cryptocurrencies, we experienced in the three months ended June 30, 2021 and seasonality in overall trading activities,” the filing said.

“It is unclear to us whether the new influx of customers at HOOD will continue to be repeat traders or would behave differently from prior cohorts of users. Approximately 60% of funded accounts on Robinhood were opened in the last 12 months, and a vast majority of them are first-time investors,” said MKM Partners analyst Rohit Kulkarni.

Another major risk to Robinhood’s valuation would be regulatory changes to the firm’s largest revenue source, payment-for-order flow, or the money-brokerage firms receive for directing clients’ trades to market makers. Payment-for-order flow is a controversial practice that has garnered attention from the Financial Industry Regulatory Authority and Main Street.

In the first quarter of 2021, Robinhood found itself in the middle of a firestorm amid an epic short squeeze in GameStop, which was partially fueled by Reddit-driven retail investors. At the height of the so-called meme stocks’ surge, Robinhood restricted trading of certain securities due to increased capital requirements from clearing houses. Robinhood raised more than $3.4 billion in a few days to shore up its balance sheet.

“We think payment-for-order flow is a better deal for our customers, vs. the old commission structure. It allows investors to invest smaller amounts without having to worry about the cost of commissions,” Robinhood CFO Jason Warnick said Saturday at the company’s virtual roadshow.

However, Warnick said Robinhood wants to be fully engaged in the regulatory and political discussion about PFOF. He said that if the model changed, Robinhood and the industry would be able to adapt.

Wharton’s Erickson called Robinhood “the most concerning high profile IPO since WeWork tried to go public a few years ago.” The embattled office-sharing company pulled its IPO in 2019 after investors balked at public numbers and disclosures in its prospectus. 

Robinhood has given no indication that investors have lost their appetite for its IPO. But there are plenty of reasons for concern.

In June, Robinhood was slapped with FINRA’s largest-ever penalty, totaling about $70 million. The company has also faced lawsuits for its multiple days of outages during times when trading volume was heavy during the pandemic. Additionally, Tenev was forced to testify to the House Financial Services Committee in February regarding the GameStop trading mania. Tenev’s phone was seized by federal attorneys in investigations about restricted stock trading.

Robinhood governance seems to be “tone deaf” to these issues, Erickson said.

“Based on significant issues with both their internal controls and regulators, you would have thought that their board would be filled with people that have extensive securities internal control and regulatory experience to compensate for this,” said Erickson, who was formerly the head of global equity capital markets at Barclays. “Unfortunately, that isn’t even close to being the case.”

— with reporting from CNBC’s Michael Bloom and Ari Levy.

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The 10 fastest-growing jobs of the next decade—and how much they pay

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The Covid-19 pandemic has radically shifted the work landscape, as millions of Americans switched career paths or said goodbye to the office forever. While U.S. employment will experience stunted growth over the next 10 years, the Bureau of Labor Statistics reports, certain jobs will be soaring in demand. 

According to a new analysis from the BLS, the U.S. will add 11.9 million jobs through 2030, many in industries that were hit hardest by the pandemic. Food preparation and service-related jobs including servers, cooks and fast food employees are projected to add about 1.5 million jobs by 2030. 

Wind turbine service technicians topped the list for the most in-demand jobs of the next decade, with that group of workers expected to jump by 68.2%. Other jobs in the ranking fall into three categories: renewable energy, data and health care. Interest in wind and solar energy has skyrocketed as installation costs drop and more countries prioritize reducing their carbon emissions, Bureau of Labor Statistics Division Chief Michael Wolf tells CNBC Make It. 

Other occupations, such as information security analysts and data scientists, will become more popular as people continue to work from home and online. “As companies have more of their employees working remotely, they’re going to invest more in software and systems that enable them to be productive in that environment,” Wolf says. “There’s also an increased emphasis on protecting their data and information online.” 

While the pandemic has created an unprecedented need for health care, continued demand for jobs in this sector is actually driven by an aging population, Wolf explains. “The baby boomer generation is much larger than previous generations, and they’re starting to enter their 60s and 70s, when people depend on more health care services,” he says. “We’re going to see a huge increase in the number of people consuming those services.”

Wolf also predicts that the country’s labor participation rate will decline as workers age and fewer young people (those between the ages of 16 and 24) pick up jobs. “We’re seeing a higher number of people decide to pursue post-high school or post-secondary education, so people are not entering the labor force as early as they were before,” Wolf notes. “It also used to be a lot more common for people to have a part-time job while attending high school or college, but now, a lot more people are deciding to be full-time students and not work in the labor force at the same time.”

Though the long-term projections are promising, the U.S. job market is facing more immediate challenges as a surge in Covid-19 cases disrupts economic recovery. After solid job growth in July, the economy has slowed, adding just 235,000 positions in August, according to the Bureau of Labor Statistics. That number is a lot less than the 720,000 new hires economists had predicted. 

 Check out:

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Elon Musk pledges $50 million to Inspiration4 fundraiser for St. Jude

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SpaceX CEO Elon Musk poses with the crew before launch on September 15, 2021.

John Kraus / Inspiration4

SpaceX CEO Elon Musk helped achieve the St. Jude Children’s Research Hospital fundraising goal of the Inspiration4 spaceflight, just hours after his company returned the crew from orbit.

The main goal of the Inspiration4 mission, which launched on Wednesday and splashed down on Saturday, was to raise $200 million for St. Jude.

Inspiration4 commander Jared Isaacman, a billionaire entrepreneur who purchased the flight from SpaceX, donated $100 million personally to St. Jude. The Inspiration4 mission had raised another $60.2 million in donations, before Musk pledged to contribute $50 million himself – pushing the campaign’s total raised to more than $210 million.

“Count me in for $50M,” Musk said in a tweet on Saturday.

The historic Inspiration4 mission with a private crew spent three days in space, carrying Isaacman, pilot Sian Proctor, medical officer Hayley Arceneaux and mission specialist Chris Sembroski. The crew orbited the Earth at an altitude as high as 590 kilometers, which is above the International Space Station and the furthest humans have traveled above the surface in years.

The spaceflight achieved multiple milestones, including: The first private SpaceX spaceflight, the first entirely nonprofessional crew to become astronauts, the first Black female spacecraft pilot, the youngest American astronaut to date, and the first person to fly in space with a prosthesis.

The Inspiration4 passengers pose in the crew access arm of Launch Complex 39A at NASA’s Kennedy Space Center in Florida. From left: Commander Jared Isaacman, medical officer Hayley Arceneaux, pilot Sian Proctor, and mission specialist Chris Sembroski.

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Crew cupola window view in orbit

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The first look at the crew in orbit, from left: Jared Isaacman, Hayley Arceneaux, Chris Sembroski, Sian Proctor.

Inspiration4

Inspiration4, which launched with Elon Musk’s SpaceX on Wednesday evening, shared the first photos from day one in orbit and gave an up-close look at the expansive views of Earth from the spacecraft’s “cupola” window.

The crew spent its first day in orbit floating in zero gravity inside the capsule, taking photos from the Crew Dragon window and spoke to patients of St. Jude Children’s Research Hospital, answering questions from space.

The historic private mission — which includes commander Jared Isaacman, pilot Sian Proctor, medical officer Hayley Arceneaux and mission specialist Chris Sembroski — is orbiting the planet at an altitude of 585 kilometers (363.5 miles), which is above the International Space Station and the highest altitude humans have traveled in years.

Inspiration4, which is expected to return to Earth and splash down this weekend, was paid for by Isaacman for an undisclosed amount, with the main goal of the spaceflight to raise $200 million for St. Jude.

Hayley Arceneaux takes in the view of Earth from the Crew Dragon cupola window.

Inspiration4

SpaceX modified the top of Crew Dragon capsule Resilience to add a massive window for the astronauts, replacing the docking hatch that is under the spacecraft’s nose cone with the cupola.

Spacecraft commander Jared Isaacman speaks into a microphone as he peers out the cupola window.

Inspiration4

The cupola is the largest window by surface area ever put in space.

Mission specialist Chris Sembroski is seen taking a photo through the cupola, from an exterior camera on Crew Dragon.

Inspiration4

Isaacman is the third billionaire to fly to space this year, following Sir Richard Branson and Jeff Bezos in July. But the latter two — flying with their respective companies, Virgin Galactic and Blue Origin — spent only a couple of minutes each in space, as those companies’ rockets fly on what are known as suborbital trips. In contrast, Inspiration4 is an orbital mission, with the crew spending multiple days in space and going around the Earth as many as 15 times in day.

Musk, among those who saw them off before launch, tweeted that he spoke to the Inspiration4 crew Thursday and that “all is well.”

“Missions like Inspiration4 help advance spaceflight to enable ultimately anyone to go to orbit & beyond,” Musk wrote in another tweet.

SpaceX CEO Elon Musk poses with the crew before launch on September 15, 2021.

John Kraus / Inspiration4

The Inspiration4 crew is making history in ways beyond becoming the first group of nonprofessional astronauts in orbit: Proctor is the first Black female to pilot a spacecraft, and Arceneaux is the youngest American and first person with a prosthesis to fly in space.

Check out more photos from launch day at NASA’s Kennedy Space Center in Florida:

Medical officer Hayley Arceneaux points to the camera as she and pilot Sian Proctor board the Tesla Model X after suiting up before the launch on September 15, 2021.

John Kraus / Inspiration4

SpaceX’s Falcon 9 rocket lifts off carrying Crew Dragon spacecraft Resilience on September 15, 2021.

John Kraus / Inspiration4

The view inside the Crew Dragon spacecraft about 30 seconds after liftoff as the Falcon 9 rocket accelerated away from Earth on September 15, 2021.

SpaceX

The shimmering exhaust plume of SpaceX’s Falcon 9 rocket launching into the dusk sky above Florida on September 15, 2021.

John Kraus / Inspiration4

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