Category Archives: Finance News

Robinhood joins a wave of fractional stock-trading offers to bring investing to the masses

Robinhood fractional trading

Robinhood

Robinhood is getting in on the recent trend of companies letting traders buy a fraction of a share.

The start-up announced the launch of fractional stock-trading on its app Thursday as a way to lower the bar for investors. The feature allows users to popular tech names like Amazon — which trades in around $1,700 per share — for as low as $1.

Robinhood is the third company in the past few months to launch the feature, following Charles Schwab and Square’s lead. SoFi and Stash are among the fintech start-ups that also offer do fractional trading. These companies all had the same rationale: bring trading to the masses.

“We have so many investors that just want to dip their feet into the market and put ten dollars in,” Robinhood CEO Vlad Tenev told CNBC in a phone interview. “We think this will empower even more people to invest.”

Square CEO Jack Dorsey, who also runs Twitter, said in October that fractional trading was a way to make “building wealth accessible to more people.” Charles Schwab was the first major brokerage firm to offer the feature, and said it was about expanding access to younger clients.

The rise of fractional trading

The mutual fund industry has been handling fractional shares for years. But it’s relatively new for individual stock-trading.

The trend picked up with automated investing apps, known as “robo advisors,” such as Wealthfront, Betterment and Acorns, according to Robert Cortright, CEO of DriveWealth, which handles fractional trades for Square and other start-ups. Cortright said fintech companies needed a way to chop up and diversify someone’s $50 dollar investments the same way an ETF would on a larger scale. That strategy has only recently moved to individual trades, which Cortright said he expects to see more of in the future.

SoFi launched a fractional feature in July said the demand to buy expensive stocks is now through the roof. Ownership of Amazon, for example, shot up 271% after they launched the feature. Seventy eight percent of SoFi Invest member’ first trades are fractional, according to the company.

There’s a “very strong relationship between high price to likelihood to buying fractional,” according to a SoFi spokesperson, who said the top five stocks on the app are now Amazon, Tesla, Apple, Disney, and Microsoft. Users are also more likely to buy in dollar amounts, instead of shares, according to the company.

Start-ups often use a third party to execute the trades and hold the remaining shares on their balance sheet. But Robinhood is doing this in house. The company plans to buy shares of whichever stock someone wants a piece of, divvy out the fraction, then keep the remainder in Robinhood’s portfolio. When enough people want to sell it and they have the equivalent of one share, Robinhood will sell it off their balance sheet.

That also means more market risk and exposure to volatility, which the Robinhood CEO said is “something they thought about” before launching.

There’s definitely a small expense for us, but we learned through our research that customers really wanted this and we did a lot of work to manage that risk and be able to offer this product within our own systems,” Tenev said.

Moving past zero fees

Robinhood, last valued at $7.6 billion, said last week that it now has 10 million accounts, which Tenev called a “strong testament to demand.” But pressure is mounting to differentiate from other brokerage firms that have caught up on fees. The Menlo Park, California-based start-up gained popularity for commission-free trades in 2013. Major incumbents including Schwab, TD Ameritrade, E-Trade, and Interactive Brokers all slashed fees to zero in October.

“We see strong customer growth and retention, but we also understand that customers expect a high degree of service, especially from their financial institutions,” Tenev said. “We’re going to roll out more products and more services through 2020 and beyond.”

Robinhood also said that by early next year it will offer dividend re-investment plans, known as DRIPs, and the ability to schedule recurring investments and reinvest cash dividends back into the market.

The six-year-old company has raised more than $800 million from investors like NEA, Kleiner Perkins, and Sequoia. While Tenev would not comment on IPO plans or profitability, he said “the business is healthy and well capitalized.”

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Stocks making the biggest moves premarket: Delta, Southwest, GE, Lululemon, Kroger & more

Check out the companies making headlines before the bell:

Southwest Airlines (LUV) – Southwest said it had struck a confidential agreement with Boeing (BA) over the grounding of the 737 Max aircraft. Details were not released but Southwest did say it would share the proceeds with its workers by adding $125 million to its profit-sharing plan.

Delta Air Lines (DAL) – Delta set a 2020 earnings target of $6.7 to $7.75 per share, compared to a consensus estimate of $7.06, with CEO Ed Bastian saying 2019’s solid performance will continue in 2020. Delta also announced a minority stake in private jet operator Wheels Up.

General Electric (GE) – GE was upgraded to “buy” from “hold” at UBS, which said GE stock is at a positive inflection point going into 2020. Debt repayment and better free cash flow are cited as the primary reasons for the upbeat outlook.

Lululemon (LULU) – Lululemon reported a profit of 96 cents per share for its latest quarter, 3 cents a share above estimates. The athletic apparel maker’s revenue was also above Wall Street forecasts, however its current-quarter earnings forecast was largely below consensus as the company invests in new product launches.

Starbucks (SBUX) – J.P. Morgan Chase upgraded Starbucks to “overweight” from “neutral” following a meeting with CEO Kevin Johnson and other executives. The firm said it sensed a “high degree of confidence” that a “growth at scale” agenda is working for the coffee chain.

Ciena (CIEN) – The networking equipment operator reported adjusted quarterly earnings of 58 cents per share, 5 cents a share below estimates. Revenue exceeded forecasts, however.

Charles Schwab (SCHW) – Compass Point upgraded the online brokerage to “buy” from “neutral,” saying it sees a compelling long-term earnings growth story for Schwab following its acquisition of TD Ameritrade.

Continental Resources (CLR) – Continental Resources founder and CEO Harold Hamm will step down, replaced by former ConocoPhillips executive and current Continental board member William Berry on Jan. 1. Hamm will become the energy producer’s executive chairman.

Jack In The Box (JACK) – Jack In The Box hired executive search firm Spencer Stuart to help find candidates to succeed current CEO Leonard Comma. Comma has not specified his departure date from the restaurant chain, but told the company’s board that now is the right time to move forward with a succession plan.

Bill.com (BILL) – Bill.com will begin trading on the New York Stock Exchange today, after the back office automation software maker’s initial public offering priced at $22 per share. That was above the expected range of $19 to $21 per share.

Fiat Chrysler (FCAU) – Fiat Chrysler’s union workers ratified a new four-year labor contract with the automaker.

Bausch Health (BHC) – The company formerly known as Valeant was upgraded to “overweight” from “neutral” at JPMorgan Chase, which points to increasingly solid fundamentals for the health care products maker.

Kroger (KR) – Evercore upgraded the supermarket operator’s stock to “outperform” from “in line,” saying that improving comparable sales and moderating investment spending do not appear to be reflected in the stock.

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Watch Christine Lagarde speak at debut ECB press conference

[The stream is slated to start at 08:30 ET. Please refresh the page if you do not see a player above at that time.]

Christine Lagarde is speaking in Frankfurt, Germany, for her first press conference as president of the European Central Bank.

The former International Monetary Fund chief took the helm at the euro zone’s top financial institution last month. She has committed to holding the ECB’s first policy review in 16 years. Analysts say she will also likely need to mend divisions at the bank over its recent policy measures under former President Mario Draghi.

Global central banks have been easing mode this year, as the headwinds of U.S.-China trade tensions and signs of economic weakness grip businesses and investors. The ECB reinstated its quantitative easing program and cut interest rates on bank reserves to -0.5% earlier this year, much to the dismay of some policymakers at the bank.

Investors are likely to monitor Lagarde’s presser for any signs as to the bank’s outlook for the euro zone and forward guidance. Europe’s economy has experienced sluggish growth this year, particularly on the back of a slowdown in Germany. Last month, data showed the country narrowly avoiding a technical recession in the third quarter.

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Your first trade for Thursday, December 12

The “Fast Money” traders shared their first moves for the market open.

Brian Kelly was a buyer of the 20+ Year Treasury Bond Short ETF.

Mark Tepper was a buyer of Broadcom.

Karen Finerman was a buyer of Ulta.

Guy Adami was a buyer of Newmont Goldcorp.

Disclosure

Trader disclosure: Guy Adami is long CELG, EXAS, GDX, INTC. Guy Adami’s wife, Linda Snow, works at Merck. Karen Finerman’s firm is long ANTM, C, CBS, CPRI, FB, FDX, FL, FNAC, GOOG, GOOGL, GLNG, GMLP, HD, JPM, LYV, REZI, RRGB, SPY puts, SPY put spreads, STNG, TBT, TGT, TIF, URI, WIFI. Her firm is short HYG, IWM, LQD. Her firm is short TGT calls. Her firm is long DIS call spreads. Karen Finerman is long AAL, AYR/CN BAC, BOT Bitcoin, Bitcoin Cash, Ethereum, C, CAT, CBS, CPRI, DAL, DVYE, DXJ, EEM, EPI, EWW, EWZ, DVYE, FB, FL, GM, GMLP, GLNG, GOOG, GOOGL, JPM, LOW, LYV, KFL, MA, MTW, REAL, REZI, SEDG, TACO, WIFI, WFM. Karen Finerman is longFB spread calls. Karen Finerman is long GOOG put spreads. Karen Finerman is long SPY puts. Bitcoin and Ethereum are in her kids’ Trust. Brian Kelly is long GLD. Short Bitcoin and Ethereum. Long Euro. Short treasury bonds.

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