The GameStop debacle has a silver lining
Welcome to Buy/Sell/Hold, Marker’s weekly newsletter that’s 100% business intelligence and 0% investment advice. Each week, our writers Steve LeVine and Rob Walker make sense of the most important developments in business right now — and give them a Buy for clever moves or positive trends, a Sell for mistakes or missed opportunities, or a Hold if they’re noteworthy but too early to call.
🌤️ The upside of our national stonkmare 🌤️
The Buy/Sell/Hold Analysis
“We are all investors now,” Robinhood, the investing app, declares in its Super Bowl ad that will run this weekend. It’s a gauzy, feel-good spot, making the fintech company’s usual pitch as a democratizer of individual investing. This takes some moxie, given Robinhood’s controversial image at the moment — on Tuesday, its Google app store rating plummeted to one star for the second time in less than a week. And of course, it’s not true in any meaningful way to announce we’re all investors now; about half of Americans have money in the market, a figure that’s held steady for decades.
Still, it’s true that we’ve just lived through a singular chapter in the history of the stock market as something close to a pop-culture phenomenon: the white-hot story of the Reddit-fueled run-up of GameStop and other equities. Our brief, national stonkmare seems to be winding down; something else will fill the Trump-sized hole in our collective attention span. Fortunes have been made; hedge funds have been hurt. And perhaps there was actually a silver lining to it all — perhaps we genuinely learned a thing or two in the process.
I realize many will be skeptical of this argument. And I concede that some casual observers of the GameStop fiasco will come away with all the wrong conclusions, seeing a story of a righteous and thrilling populist uprising that somehow spells the end of Wall Street, and who will “learn” just enough from that to leap into stocks and lose a lot of money. I understand that a little knowledge can be a dangerous thing.
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But outright ignorance can also be a dangerous thing, in which case a little knowledge is a step in the right direction. And the GameStop affair has accidentally taught an unprecedented audience about how short-selling (and short squeezes) work; about the murky role of hedge funds in the market; even about technical arcana like trade clearinghouses. Maybe most notably, it’s drawn attention to payment for order flow, a lately controversial and not-so-little-guy-friendly practice that happens to be a key source of Robinhood’s revenue. Robinhood rival Public even announced it would stop the practice in order to “better align our incentives” with those of its actual retail customers.
Maybe that all sounds esoteric — but that’s the point. Markets, especially when it comes to trading individual equities, are not some simple and entertaining playground that everyone should try for lulz and easy profit. It takes effort to understand them, and that’s worth doing whether you’re an active investor or not. Moreover, as GameStop shares have plunged, punishing retail investors who leapt in at the top, this saga’s final lesson should be a boringly useful one: While it’s clearly possible to do well betting on a single stock, for most investors a basic index fund and a buy-and-hold attitude are a much better strategy.
Active trading is not easy, and it’s definitely not for “all” of us — no matter what Robinhood’s gooey ad may want you to believe. And that’s okay! If this crash course managed to teach that practical, evergreen financial lesson to a new market-curious audience, they are all the smarter — and the market is all the stronger — for having learned it.
Verdict: Buy
— Rob Walker
⚡Lightning Round⚡
⚡ 23andMe enters an unexpected SPAC partnership. The DNA testing company announced Thursday its plan to go public via a merger with a blank check company backed by billionaire Virgin Group co-founder Richard Branson. Travel, telecomms, and music-mogul Branson and 23andMe make surprising bedfellows, but even more unusual is that the 15-year-old biotech company is one of the more mainstream firms seeking the SPAC path, which has commonly caught the eye of startups like Tesla troll Nikola and, reportedly, infamous IPO disaster story WeWork. Hold.
⚡ Google’s ad business doubles down during the pandemic. As the coronavirus began to spread nationwide last spring, advertising sales for traditional media like TV were predicted to take a huge blow, with digital advertising from companies like Google better positioned to fare better during the economic volatility. On Tuesday, Google’s fourth-quarter earnings confirmed that it not only held course through the end of 2020, but saw record revenue from ad sales — a whopping 22% year-over-year jump. Yet another tally in the list of FAANG giants like Amazon and Microsoft to cement their dominance while the pandemic rages. Buy.
⚡ Uber gets boozy with yet another delivery company. Just in case it didn’t secure enough market share owning both Postmates and Uber Eats, the ride-sharing giant announced Tuesday that it was adding one more delivery business to its roster: Drizly, a startup specializing in alcohol delivery. Unlike Postmates and Uber Eats, Drizly is a rare outlier in the food-and-beverage delivery sector: It’s actually profitable. But despite its impressive bookings growth through the pandemic — 300% year over year, according to Uber CEO Dara Khosrowshahi — Drizly alone won’t save the ride-sharing company, which in December sold off its main alternative path to eventual profitability, its self-driving cars unit. Sell.
⚡ Netflix cleans up the Golden Globe nominations. When Golden Globe nominations were announced on Wednesday, it was clear that Netflix, which ended 2020 with over 200 million subscribers, had dominated the critical reception of pandemic-era movies and TV. The company earned a commanding 42 nominations, dwarfing its closest competitor, Disney, which earned 25. WarnerMedia — owner of HBO, once the ultimate TV awards darling — only earned 13 total nominations across all properties. As entertainment swings aggressively toward streaming, with cinema chains holding on for dear life, Netflix is no longer the awards show underdog with its eye on dethroning the old guard. Buy.
📈 The Number: 63%
That’s the share of Amazon’s operating profits — a portion equal to $13.5 billion — that the Amazon Web Services division was responsible for in 2020, per GeekWire.
When Jeff Bezos announced earlier this week that he planned to step down as CEO of Amazon, all eyes were on his soon-to-be replacement Andy Jassy. Jassy, the head of the Amazon Web Services division, joined Amazon as a marketing manager in 1997 and became Bezos’ first technical adviser, a role that was known internally as Bezos’ “shadow.” In the early 2000s, he spearheaded the least flashy arm of the business: a division that could address the dearth of reliable data warehousing infrastructure on the internet — a need that Amazon felt acutely as it struggled to roll out new projects.
What began as a solution for Amazon’s own needs turned into its biggest cash cow, with companies like Netflix, Apple’s iCloud, and even NASA relying on its services. AWS may not be the beast it once was, as its dominance in the cloud computing market is being challenged by more recent entrants, like Microsoft Azure and Google Cloud, which are gaining market share quickly. Still, AWS is hardly a slouch: Given that it accounted for nearly two-thirds of Amazon’s operating profit in a year when the company made a record $386 billion in revenue — an eye-popping 38% jump from 2019 — it makes sense that Bezos would give the top job to the company’s biggest earner.
— Kaushik Viswanath, Senior Editor, Marker
📖 Marker Read of the Week: The shocking meltdown of Brooklyn’s hottest ice cream company, Ample Hills.
🔎 Marker’s New Fixation 🔎
In a month that included the Capitol attack, double Georgia runoffs, presidential inauguration, and GameStop stock drama, it’s hard to imagine that January had any oxygen left for another earth-shattering news story. But last week, the Washington Post squeezed in the final seismic scoop of the month: Two customers are suing Subway over alleged claims that the chain’s tuna is, in fact, not tuna. According to the lawsuit, independent lab tests revealed that Subway’s tuna is “a mixture of various concoctions” that is “made from anything but tuna.” (The plaintiffs declined to share what ingredients the labs revealed instead of tuna.) Subway has hotly contested these claims, calling them “baseless accusations.” I’m not here to speculate on whether this lawsuit holds water, but you have to give credit where credit is due: If you were going to choose one fast food product to put under a microscope, you couldn’t pick anything better than Subway’s tuna, which on its best days lies in the uncanny valley of semi-plasmic protein slurries. The chain doesn’t exactly inspire culinary confidence — just this past October, Irish courts ruled that Subway’s bread could not be defined as bread because it was so high in sugar. Given its track record, it would be in Subway’s best interests to lay low and let this story die, but on Monday Delish reported that it’s now offering the promo code “ITSREAL” for 15% off a tuna sub bought online or through its app. For the sake of customer assurance, certain foods should never be discounted, and tuna is high amongst them.
— Jean-Luc Bouchard, Senior Editor, Marker
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