🎙️ Generational Disruption

💪 Women keep climbing higher in the workforce.

A new Pew research report found that the proportion of women in the highest-paying jobs in the U.S. — median earnings ~$136,000 — has jumped 22 percentage points to 35% since 1980.

Translation: More women dentists, physicians, pharmacists, and lawyers, all roles that were once reserved (almost) exclusively for men.

By the way, if you have unfilled job postings at your company, we want to help. Complete this brief survey to get in touch with us.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

• Robinhood misses the meme-stock glory days

• Warner Bros. Discovery’s slide amid ‘generational disruption’

• How big banks are unloading risk

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

💬 Robinhood’s Stock Tanks on Earnings

Oh, to be back in 2021, when anything could happen — you might just become a millionaire trading Gamestop options. Well, that’s what many thought, at least, and that peak meme-stock era optimism was great for Robinhood’s business.

What’s happening: Things aren’t going nearly as well these days at the firm that pioneered commission-free stock trading. Robinhood’s stock fell 14% on news that its number of monthly active users was declining, down 16% since last year.

• Still, revenue was up (but a little shy of Wall Street expectations), and while not profitable, its losses are shrinking.
  

• But, as a brokerage firm, its business depends on more trading volumes going through its platform, and that’s where investors are concerned.
  

• Robinhood embraced crypto like few other major brokerages have, and it hasn’t panned out as hoped — crypto trading collapsed 55% year-over-year.

The firm’s CFO expressed his fondness for meme days of yonder in corporate speak: “We've been operating in an environment that's very different from the zero-rate backdrop from two years ago.” Very different indeed.

• Translation: Higher interest rates impose gravity on financial markets, strengthening as rates rise and raising the opportunity costs of speculating on Dogecoin or AMC, which is bad for Robinhood’s business.

Why it matters:

Beyond the meme: Without meme stock hype driving folks to day-trade on Robinhood, the plan has been to lean into more traditional financial services, like offering savings accounts and retirement accounts.

• And the company has made inroads in diversifying its business. As its CEO said, “Over the past year, we’ve put a lot more value in products like Robinhood Gold, including a 4.9% annual yield on cash and a 3% match on IRA contributions.”
  

• Yet, Robinhood continues to expand its core business — it’s launching brokerage services in the UK in the coming weeks and expanding crypto-trading services in the European Union.
  

• Before today’s selloff, the company was up nearly 20% year-to-date, though it’s down over 80% since its peak in 2021.

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📺 Warner Bros. Discovery Slides Amid ‘Generational Disruption’

Warner Bros. Discovery reported third-quarter earnings before the bell Wednesday, and boy, it wasn’t pretty. 

Double-whammy: Warner said a decline in TV advertising revenue — reflecting an industry-wide trend — and lackluster subscription growth contributed to high losses per share and so-so revenue. 

• Warner Bros. posted a $417 million net loss, better than the $2.31 billion it reported a year ago, but still bad enough to drive a 19% decline in the stock.
  

• Over the past few years, Warner Bros.’ stock has fallen 60%, while the S&P 500 has gained more than 50%.
  

• Its flagship streaming service, Max, launched in May, merging HBO Max and Discovery+ content. The company has 95.1 million subscribers, a 700,000 fall from last quarter, largely due to an “extraordinarily light content slate.”

The big takeaway: Forget those numbers for a second because CEO David Zaslav issued a blunt, dire depiction of the industry, notoriously ruthless and competitive.

•  “This is a generational disruption we’re going through. Going through that with a streaming service that’s losing billions of dollars, it’s really difficult to go on offense.”

The legacy media industry has fallen rapidly, about a decade after the traditional newspaper industry cratered. Yes, they’re different industries, but the reasons for their demise have been similar: Falling ad revenue and the rise of more competitors on the internet. 

To make matters worse, Warner Bros. warned of continued sluggish ad revenue in 2024 and ongoing impacts from the actors’ strike. That guidance is likely what has the stock in the gutter this week. 

• On a positive note: Discovery paid off some of its debt load, with $2.4 billion of repayments. It still has $5.3 billion in “gross debt” — the total debt on its balance sheet.
  

• Oh, and for the “Barbie” fans, it was the highest-grossing film in Warner Bros. history, racking in nearly $1.5 billion in global box office revenue. 

Why it matters:

Discovery’s disappointing earnings come after Roku and Paramount posted positive numbers last week. Disney, meanwhile, reported profits that beat expectations, but ad revenue slumped.

The bottom line: Discovery shows that many things must go right to do well in streaming. You need an attractive bundle or marketing approach. You need to reduce churn. You need fresh content throughout the year, including top shows that draw big numbers. 

• Despite its growth challenges and the occasional bad quarter, Netflix has made streaming look a lot easier than it is. 

Read more

MORE HEADLINES

💰 Chinese fast-fashion firm Shein targets up to $90B valuation in U.S. IPO

🏡 Charting the rise of the American McMansion

👉 Ohio approves constitutional amendment that ensures abortion access

🍷 Wine production globally falls to the lowest level in 60 years

📉 Some relief: U.S. 30-year mortgage rate tumbles by most in a year

📺 YouTube expands its crackdown on ad-blockers

🏦 Big Banks Cook Up New Way to Unload Risk

So much of what happens in markets follows incentives, and tighter regulations + higher interest rates have incentivized U.S. banks to get creative about unloading risk. 

Big players like JPMorgan Chase, Morgan Stanley, and other behemoths are diving into the world of “synthetic risk transfers.” But mention that at your next happy hour, and you’ll likely get cold replies or yawns (or both). 

What that means: Big banks must pay regulatory capital charges on the loans they make, so they’re selling complicated debt instruments to private fund-managers to reduce those charges. 

A capital charge is like a safety net, ensuring banks have enough money to absorb losses without going bankrupt, but it limits their ability to lend (which drives banks’ profits.)

• These synthetic risk transfers ain’t cheap for banks, but they’re less costly than taking the full capital charges.
  

• Investors can get returns of 15% on the transfers.

Judge, jury and hangman: Banks weren’t really into this until the past couple of months because of heightened regulation after the midsize bank failures earlier this year. 

• “We simply have to take it because they’re judge, jury, and hangman,” JPMorgan’s Jamie Dimon said when asked about new capital regulations. Per The Wall Street Journal, JPMorgan has put together about $2.5 billion worth of deals to cut capital charges on its corporate and consumer loans.
  

• The banking panic in March and higher rates haven’t helped banks’ investment portfolios, either, driving them to reduce risk.

How it works: Investors typically pay cash for notes or credit derivatives; the deals are like insurance. But banks pay interest, not premiums. 

And by cutting potential loss exposure, they reduce the amount of capital banks must hold against their loans.

• A bank’s capital requirements are the standards that outline how much liquid capital (easily sold assets) they must have on hand.
  

• Such requirements are often tightened after a recession or stock market crash. In this case, it was the banking chaos that unfolded in March.

Why it matters:

Banks worldwide will transfer risk tied to roughly $200 billion of loans in 2023, up from roughly $160 billion last year, per WSJ. 

• New demand has driven Blackstone’s hedge-fund unit and D.E. Shaw (where Jeff Bezos worked before Amazon) to launch strategies or raise funds purely for risk-transfer trades — an example of how hedge funds and private equity firms are increasingly important in the financial world. 

More to come? U.S. bank regulators have been busy this year, and a new proposal is on the way that could increase capital charges by about 20% while penalizing firms that take big fees, including banks’ lucrative wealth management and trading units. 

The bottom line: Just as new rules followed the financial collapse in 2008 (notably the Dodd-Frank Act), 2023’s midsize bank failures ushered in a new slate of regulation. 

Read more

QUICK POLL

Yesterday, we asked: Do you think most companies should offer flexible remote-work options?

—Two-thirds of respondents said yes; the others said no.

—Wrote one supporter of flexibility: “Look at remote work as a much larger talent pool and the ability to drive productivity in different ways.” On the other side, someone said it depends on the nature of the work: “Most no, some yes.”

See you next time!

That's it for today on We Study Markets!

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