đź’µ Inside the racial funding gap
![When no one has Venmo [LeoPatrizi/E+ via Getty Images]](https://cdn.robinhood.com/static_content/mwphzyq69oso/en-US/assets/files/1tcAN69Fvb8oKZbzKweGyL_1_GettyImages-1159746818.jpg)
Hey Snackers,
Talk about burning bridges: Jeff Bezos’ superyacht is so big that the Dutch city of Rotterdam is considering temporarily dismantling a historic bridge to help the 417-foot boat reach the ocean.
Meta lost more than $230B in market value yesterday after disappointing earnings — the largest one-day loss ever for an American company. It wasn’t all bad for tech: Snap, Pinterest, and Amazon soared after-hours on earnings. US Covid hospitalizations continued falling, while the Bank of England (think: Fed, but UK) raised interest rates to tame inflation.
Venmo owner PayPal had its worst day after fizzling user growth, as pandemic thrivers become divers
Splitting the brunch bill IRL… PayPal had a few bright spots in its earnings on Wednesday: Quarterly sales and payment transactions hit record highs, while millennial fave Venmo generated nearly $1B in revenue (FYI: PayPal makes most of its money from processing fees). But then PayPal warned that new users are expected to reach only 20M this year, compared with the 46M added last year. Cue: PayPal stock had its worst day ever, plunging 24% and shedding $50B from its market cap. A few reasons for the cooling growth:
- 1. Lower-income users are cutting back on spending as prices soar and stimulus savings run dry. In December, US consumer spending fell for the first time in nearly a year.
- 2. PayPal had to close 4.5M “bad actor” accounts after its incentive to give new users a $10 sign-up bonus backfired.
- 3. PayPal's split from eBay, which was its primary checkout service, left a $1.4B hole in profits.
$10 Venmo request > $10 bill… The pandemic pushed us further into contact-less spending as more than half of Americans swapped cash and credit for digi-payments. In 2020, PayPal had its best year ever with total payment volume reaching nearly $1T. Now it’s doubling down on user engagement vs. user growth to revive spending. Think: building a PayPal “super app” where users can pay bills, access savings, and trade crypto all in one. Yet it still hasn’t integrated PayPal with Venmo.
Many pandemic thrivers are looking like divers… especially when compared with their 2020 performance (aka: year-over-year earnings). Shares of Peloton, Zoom, Netflix, and PayPal have taken major dives this year, as growth slows and year-over-year comparisons look harsh. Pandemic thrivers helped make lockdown life livable, but “normal” life is returning. In the past year, PayPal’s stock has lost half its value and erased nearly all pandemic gains.
Inside the funding gap: Black Americans start more businesses, but growth is elusive
“Your order supports this Black-owned business”… Black Americans are more likely to start businesses than any other ethnic group, with women of color starting businesses at 4.5X the rate of the overall population. In recent years, consumers have increasingly sought to support Black-owned brands. Companies from DoorDash to Airbnb have spotlighted Black businesses on their platforms — so have influencers and celebs. But despite this traction, many Black brands are finding it difficult to grow.
- Just 4% of Black businesses are still open after 3.5 years — dramatically less than the national average of 55%.
- Fewer than half of Black-owned businesses were considered healthy before the pandemic began, compared with 73% for white-owned businesses.
Mind the gap… Loans and venture capital are critical to business growth, but Black businesses tend to have less access to funding.
- Limited loan $$$: A recent McKinsey study found that 47% of Black biz owners’ loan requests were approved, compared with 75% for white owners.
- Lower starting capital: Black entrepreneurs start off with $35K, on average, compared with $107K for white entrepreneurs.
- Less venture capital: Fewer than 2% of $1B+ startups over the past decade have had Black founders.
Why… Several factors contribute to the funding discrepancies, including discrimination and the widening racial wealth gap. Also: Majority-Black neighborhoods have fewer bank branches and higher interest rates on biz loans compared with the national average. While three-fourths of the US uses digital banking, brick-and-mortar branches are still vital, especially in low-income urban neighborhoods and rural communities.
Equitable funding is essential for growth… Black communities have traditionally been the most likely to be denied access to capital, and Black families are still more likely to be denied mortgages. The traditional banking process can be riddled with discrimination, and lenders sometimes make decisions based on factors other than creditworthiness. In fact, Black-owned businesses were 12% more likely to obtain PPP loans from fintech lenders as opposed to small brick-and-mortar banks, where humans make decisions rather than algorithms. Moves by financial companies to address inequalities could help shrink funding gaps.
What else we’re Snackin’
- Primed: Amazon shares jumped 17% on booming cloud sales and big profits from its stake in electric-truck maker Rivian. The Zon also hiked Prime subscriptions to $140 (from $120).
- GameBoy: Nintendo’s Switch has officially unseated the Wii as the best-selling Nintendo console. Despite “Animal Crossing” demand, Nintendo warned that supply shortages would hurt Switch sales this year.
- Filter: Snap shares jumped 60% after the little ghost reported its first-ever quarterly profit. New "Discover"-page channels and AR-filter investments helped boost users and engagement.
- Private: Meta warned that Apple’s iOS privacy update could cost it $10B in ad sales. So far, 62% of iPhone users have opted out of ad tracking.
- Hoppy: Travel-booking app Hopper reportedly hit a $5B valuation, up from $3.5B in August. Despite Omicron woes, Hopper’s sales quadrupled last year thanks to flexible features like rebooking guarantees.
Friday
- Earnings expected from: Bristol Myers Squibb, Sanofi, and Regeneron
Authors of this Snacks own: shares of Amazon, Snap, Netflix, and Apple
ID: 2023877