Technology News

NEW YORK (AP) — After a rocket rise where it introduced millions of people to investing and reshaped the brokerage industry, all while racking up a long list of controversies in less than eight years, Robinhood is about to take the leap itself into the stock market.

Robinhood Markets and three of its executives are selling up to 60.5 million shares of its stock in an initial public offering, with trading expected to begin on the Nasdaq Thursday.

It’s a huge moment for the fast-growing company, which is sticking to its mantra of trying to “democratize finance” by reserving many of the shares for its own customers, rather than just big professional investors. Can Robinhood convince them to embrace its stock, just as it helped a generation of investors take on trading stocks, options and cryptocurrencies?

Here are a few things to keep in mind ahead of what’s one of the most anticipated IPOs on Wall Street this year:

HOW DOES A FREE SERVICE MAKE MONEY?

Robinhood’s revenue soared 245% last year to $959 million. It then hit $522 million in the first three months of 2021 alone, more than quadrupling from the year-ago level.

Robinhood doesn’t charge trading commissions or require customers to carry big balances — one reason why it’s so popular. It makes the bulk of its money — 81% of revenue in the first quarter— by funneling investors’ orders to big trading firms, such as Citadel Securities, which take the other side of the trade. They also give a payment to Robinhood.

The practice, called “payment for order flow,” has drawn criticism from lawmakers and regulators. The head of the Securities and Exchange Commission has questioned whether it prevents investors from getting the best price possible for their trades and whether it impels brokerages to encourage customers to trade more frequently than they should.

But legal experts say tighter regulation may be difficult to bring about. Brokerages need to make money somehow, and if Robinhood can’t get it from payment for order flow, it could go back to charging trading commissions, said Joshua Mitts, a law professor at Columbia University. That could make politicians even less popular than they already are.

“I think investors in many ways are pricing that in,” Mitts said, “and there’s a pretty good sense that Robinhood is going to be OK.”

WHAT IF THE TRADING BOOM FIZZLES?

Even if payment for order flow sticks around, Robinhood’s dependence on the practice could be an issue. During normal times, Robinhood may get about 75% of its money from transaction-based revenue, roughly triple what some competitors get, said Tom Mason, senior research analyst at S&P Global Market Intelligence.

Robinhood earns an average of 2.5 cents for every $100 traded. That it means it stands to lose if users start trading a lot fewer $100 blocks on its app.

Robinhood says its revenue could fall in the July-September quarter when compared to the April-June period, when revenue rose an estimated 124% to 135%. Besides seasonality issues, Robinhood said it expects to see decreased levels of trading activity, particularly in cryptocurrencies, which accounted for 17% of revenue in the first three months of the year. Prices of Bitcoin and other cryptocurrencies have been generally falling since peaking in April.

Among other risks, Robinhood’s customers could spend less time on the app if a fading pandemic means they can go on with their lives and do other things with money.

Robinhood also hasn’t always kept customers happy: Its platform has had some high-profile outages, and early this year it temporarily barred investors from making trades in GameStop, when manic movements in its stock were the talk of the market. That may have played a role in the roughly 600,000 customers that emptied their accounts during the first three months of the year. The company has 18 million funded accounts.

Counterbalancing all that may be the strong brand Robinhood has created, which has allowed the company to attract new customers without spending much on marketing. And Robinhood’s advantage over competitors is an intense focus on customers, which pushes it to roll out in-demand products very quickly, said S&P’s Mason.

TRUSTING CUSTOMERS AS INVESTORS

Robinhood is taking the unusual step of allowing users of its trading app to buy up to 35% of its IPO shares before they begin trading. That’s the largest portion by far of pre-IPO shares to be designated for retail investors in an underwritten offering, says Matt Kennedy, senior IPO market strategist at Renaissance Capital.

Typically, only institutional investors and company insiders can buy shares in companies before they go public, and ordinary investors miss out on any first day pop. Between 2001 and 2020 the average U.S. IPO returned 14.5% from the offer price on day one, according to Renaissance Capital. The return this year is an even-better 25% when looking at IPOs that raise at least $100 million.

The biggest risk, Kennedy says, is that retail investors are more likely than institutional traders to flip their shares for a quick profit, raising the possibility of increased volatility on the first day of trading. For its part, Robinhood has warned that users who sell IPO shares within 30 days of the IPO will be restricted from buying shares in IPOs on Robinhood’s platform for 60 days.

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PARIS (AP) — France’s defense minister wants to learn from her Israeli counterpart what, if anything, Israel knew about the clients of the spyware company NSO who possibly targeted the cellphones of President Emmanuel Macron and other members of the French government.

Israeli Defense Minister Benny Gantz was meeting in Paris on Wednesday with French Defense Minister Florence Parly, and the French government spokesman said Parly was questioning him about “the knowledge the Israeli government had about the activities of NSO clients.”

Gabriel Attal said Parly also wants to know what measures will be taken to prevent such “misappropriations.”

France is trying to get to the bottom of allegations that in 2019 Macron and members of his government may have been targeted by an unidentified Moroccan security service, using NSO’s Pegasus spyware.

Morocco, a key French ally, has denied those reports and is taking legal action to counter allegations implicating the North African kingdom in the spyware scandal. Foreign Minister Nasser Bourita said last week that anyone making such claims must show proof or justify itself in court, the official MAP news agency reported. Morocco has filed a suit for defamation against Amnesty International and the Paris-based nonprofit Forbidden Stories, which obtained a list of 50,000 cellphones of people said to be potential surveillance targets.

NSO has also denied that Macron was targeted. It says that it sells the product only to governments and that it is used to catch criminals and terrorists.

Gants came prepared for his encounter with Parly.

The Israeli Defense Ministry announced Wednesday that government officials met with representatives of NSO Group. The Defense Ministry regulates all military exports, including cybersecurity products, and private companies like NSO must receive approval to do business abroad.

“Representatives of several bodies visited the office of NSO in order to assess the allegations raised in regards to the company,” the ministry said. It did not elaborate.

NSO said it is “working in full transparency with the Israeli authorities.”

“We are confident that this inspection will prove the facts are as declared repeatedly by the company against the false allegations made against us in the recent media attacks.”

Israel’s Channel 13 TV said Macron’s phone was analyzed by NSO and it was determined that it had not been hacked. It said Gantz was delivering this “calming” message to the French.

“There are talks between members of the governments and their counterparts,” the French government spokesman said, adding that he would have no further comment due to the ongoing investigation, which also involves “serious, in-depth, very technical” inspections.

Separately, the Paris prosecutor’s office is investigating the suspected widespread use of Pegasus to target journalists, human rights groups and politicians in multiple countries.

Parly made no public comments on her meeting with Gantz, who was in Paris on a long-planned visit, the government spokesman said.

Before that meeting, the Israeli defense minister visited with members of France’s Jewish community to talk about a rise in antisemitic attacks. Gantz emphasized that “an attack on any Jew in the world is an attack on us as a nation,” his office said.

___

Josef Federman reported from Jerusalem. Catherine Gaschka in Paris contributed to this report.

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MEXICO CITY (AP) — Mexico’s top security official said Wednesday that two previous administrations spent $61 million to buy Pegasus spyware that has been implicated in government surveillance of opponents and journalists around the world.

Public Safety Secretary Rosa Icela Rodríguez said records had been found of 31 contracts signed during the administrations of President Felipe Calderón in 2006-2012 and President Enrique Peña Nieto in 2012-18. Some contracts may have been disguised as purchases of other equipment.

The government said many of the contracts with the Israeli spyware firm NSO Group were signed with front companies, which are often used in Mexico to facilitate kickbacks or avoid taxes.

Last week, the government’s top anti-money laundering investigator said officials from the two previous administrations had spent about $300 million in government money to purchase spyware. But that figure may reflect all spyware and surveillance purchases, or may include yet-unidentified contracts.

Santiago Nieto, the head of Mexico’s Financial Intelligence Unit, said the bills for programs like the Pegasus spyware appear to have included excess payments that may have been channeled back to government officials as kickbacks.

Nieto said the amounts paid, and the way they were paid, suggested government corruption in an already questionable telephone tapping program that targeted journalists, activists and opposition figures, who at the time included now President Andrés Manuel López Obrador and his inner circle.

“This implies or at least presumes the existence of acts of corruption, by selling (the spyware) at inflated prices to the government between the years 2012 and 2018,” Nieto said.

López Obrador took office on Dec. 1, 2018, and vowed never to use spyware. Nieto said no transactions had been detected in the current administration.

Mexico had the largest list — about 700 phone numbers — among the thousands reportedly selected by NSO clients for potential surveillance.

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DETROIT (AP) — Sky-high sales prices for its pickup trucks and SUVs helped Ford Motor Co. turn a surprise second-quarter profit despite a global shortage of computer chips that cut factory output in half.

The Dearborn, Michigan, company said Wednesday that it made $561 million from April through June, largely because of cost cuts and higher-than-expected prices for its vehicles.

The automaker warned earlier in the year that it would be hit especially hard by the chip shortage and a fire at Japanese supplier Renesas that manufactures many of its automotive-grade chips, resulting in a second-quarter loss.

But Ford surprised investors by earning 13 cents per share excluding one-time items. That was far better than Wall Street expectations of a 3-cent-per-share loss, according to FactSet.

Revenue was $26.8 billion, also above analysts’ forecasts of just over $23 billion.

Ford raised its guidance for full-year pretax income by about $3.5 billion to between $9 billion and $10 billion. But it cautioned that higher commodity prices and capital investments would offset second-half wholesale volume that it expects to rise by about 30% over the first half.

Orders are up for the electric Mustang Mach-E SUV and the new Bronco SUV, making Ford’s business “spring loaded” for a rebound when chip supplies stabilize, CEO Jim Farley said in a statement.

Chief Financial Officer John Lawler said Ford expects production to improve in the second half of the year. He said it has a bank of orders seven times larger than it was a year ago due to new vehicles. For instance, the company has about 120,000 reservations for the new F-150 Lightning electric pickup truck, and about three quarters of them are new customers for Ford, he said.

During the latest quarter, sales in the U.S., Ford’s most profitable market, rose nearly 10% over last year’s pandemic-ravaged quarter. But the company lost more than a quarter of its U.S. market share, which fell to 10.6%, according to Edmunds.com.

Still, Ford’s average U.S, vehicle sales price, led by the F-Series pickup, rose 6.3% to $47,961 for the quarter, bringing the company badly needed revenue.

Lawler blamed the market-share decline on short supplies due to factories being shut down because of the lack of chips. He said the company has a good chance to regain that share as the shortage wane, and it will work hard to fill orders.

Ford had predicted in April that the chip shortage would cut its second-quarter production 50%, or by 1.1 million vehicles worldwide. Lawler said it did indeed lose about half of its production worldwide, with factory output about 700,000 vehicles below Ford’s initial plan.

But the company allocated available chips to its most profitable vehicles, he said.

Lawler said the Renesas plant’s production line damaged by the fire should produce more in the second half of the year, alleviating some of the chip shortage. He said he sees the shortage running through this year into the first part of 2022.

“We need to see relief coming through before we can really feel comfortable that we’re out of the woods here,” he told analysts on a conference call.

But Lawler cautioned that increased prices for raw materials will take about $2 billion out of its pretax income in the second half. Also, pretax profits at Ford’s credit arm — $1.6 billion last quarter — will likely fall by $1 billion from the first half as values of vehicles returning from leases drop closer to normal.

“We do have some headwinds but we like the underlying strength of the business,” he said.

High prices are likely to continue as long as there is an imbalance between low supplies and strong demand, Lawler said, although he said he expects prices to fall a bit in the fourth quarter.

“We expect to have relatively strong pricing power for the foreseeable future,” he said.

Lawler said the company has produced and stored 60,000 to 70,000 vehicles without chips, and it will retrofit them when the parts are available. Ford will increase inspections to make sure the vehicles have the same quality as those that went directly through assembly lines, he said.

Ford’s stock was up almost 4% in extended trading following the release of the earnings report after the close of Wall Street’s regular session Wednesday.

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Concerns about a revenue growth slowdown pushed Facebook’s shares lower in after-hours trading Wednesday, not long after the company reported that its second-quarter profits doubled thanks to a massive increase in advertising revenue.

But CEO Mark Zuckerberg set his sights far beyond the second half of 2021, exalting what he sees as the next phase of how people experience the internet. What the rest of the world might know as augmented and virtual reality with a dash of science fiction, Zuckerberg and others are calling “the metaverse,” a futuristic and somewhat vague notion that encompasses AR, VR and new, yet-to-be-imagined ways of connecting to one another via technology.

Zuckerberg expects the metaverse to be the next big thing after the mobile internet, although he’s had a spotty track record when it comes to predicting major trends of the near future. At Facebook’s f8 conference four years ago, for instance, Zuckerberg predicted a future where you will sit in your bedroom wearing a headset and take a virtual vacation with faraway friends and family, or use your smartphone’s camera to virtually spruce up your dinky apartment.

So far, this has not materialized. Then there’s Libra — now known as Diem — a cryptocurrency project Facebook launched in 2019 amid great fanfare. At the time, Facebook envisioned Libra as an emerging global digital currency; its ambitions have since been scaled back considerably amid regulatory and commercial backlash.

In a conference call with analysts, Zuckerberg called the metaverse the “next generation of the internet and next chapter for us as a company,” one that he said will create “entirely new experiences and economic opportunities.”

For now, though, Facebook still has to contend with more mundane matters such as antitrust crackdowns in the U.S. and elsewhere as well as concerns about how it handles vaccine-related and political misinformation on its platform. The company said, as it has before, that it expects challenges in its ability to target ads this year — including regulatory pressure and Apple’s privacy changes that make it harder for companies like Facebook to track people who can opt out of that form of surveillance.

Although the social network doubled its profit in the second quarter, in part because of higher average prices it charged for the ads it delivers to its nearly 3 billion users. But the company said it doesn’t expect revenue to continue to grow at such a breakneck pace in the second half of the year.

“This quarter’s results are extremely strong and show little sign of impact from Apple’s iOS update as of yet,” said eMarketer analyst Debra Aho Williamson, noting that in the year-ago quarter Facebook saw its slowest revenue growth since going public, so it was an easy comparison. “But it’s also due to the fact that there is enormous demand for Facebook and Instagram advertising, and more competition leads to higher ad prices.”

Separately, Facebook said on Wednesday that it will make vaccines mandatory for employees in the U.S. who work in offices. Exceptions will be made for medical and other reasons. Google announced a similar policy earlier in the day.

The Menlo Park, California-based company earned $10.39 billion, or $3.61 per share, in the April-June period. That’s up from $5.18 billion, or $1.80 per share, a year earlier. Revenue jumped 56% to $28.58 billion from $18.32 billion. Analysts, on average, were expecting earnings of $3.04 per share and revenue of $24.85 billion, according to a poll by FactSet.

Advertising revenue growth was driven by a 47% year-over-year increase in the average price per ad and a 6% increase in the number of ads shown to people. Facebook said it expects ad prices, not the amount of ads it delivers, to continue to drive growth.

The company predicted uncertainty for 2021 back in January, saying its revenue in the latter half of the year could face significant pressure. Because revenue grew so quickly in the second half of 2020, Facebook said at the time that it could have trouble keeping up that pace.

Williamson said the third quarter will be an important one for the company, “as the full effects of the Apple update take hold.”

“We will have a much better sense of how well Facebook has been able to adjust its core ad targeting products to manage the reduced amount of information it can tap into,” she said.

Facebook had 2.9 billion monthly users as of June, up 7% from a year earlier.

Shares fell $11.77, or 3.2%, to $373.28 in after-hours trading. Earlier in the day, the stock hit an all-time high of $377. 55 in anticipation of the results, so the decline wasn’t unexpected.

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