One of the communal aspects that has made investing and trading a type of social experience for younger investors has been the use of the Robinhood (HOOD -3.20%) brokerage app. Robinhood's list of the 100 most popular stocks on its app has been around since early in its launch.
The three companies below have been on the list for an extended period, but that doesn't mean they are all good stocks to buy. They all carry different risks, but a deeper look helps show which risks make the most sense for investors to take.
An icon remade
It may not have been the company's strategy prior to the pandemic, but Walt Disney (DIS -3.52%) has used the unusual circumstances of the last 18 months to remake itself. Disney management navigated the business interruptions created by the pandemic to accelerate its streaming service strategy and modify its film distribution business accordingly. In another sign of the times, Disney is also reportedly looking to license its valuable brand to major sports-betting companies in a multi-billion dollar deal, according to a recent Wall Street Journal report.
The streaming TV services have become a success for the company. As of July 3, 2021, Disney reported almost 174 million paid subscribers for Disney+, ESPN+, and its Hulu services. Though there is plenty of potential with the streaming business, right now it is still the theme parks that will drive the company's results once that segment recovers.
Prior to the pandemic, the parks segment represented 38% of revenue for the fiscal year ended Sept. 28, 2019. With the recovery having only recently begun as travel and tourism still remain below pre-pandemic levels, Disney's parks are not yet thriving again. For the first nine months of this fiscal period ended July 3, 2021, Disney parks and experiences only contributed about 23% to total revenue. But with a new growth driver in streaming, and a full recovery in the theme parks likely, the risks associated with having Disney stock in a portfolio are probably worth taking for most long-term investors.
A transition back to profitability
Action camera maker GoPro (GPRO -1.80%) has a popular product, and Robinhood investors have made it a popular stock. The company hasn't reported a profitable year since 2015, but through the first half of 2021, GoPro reported positive net income of $6.8 million on revenue of $454 million.
GoPro's strategy back to profitability is two-pronged. First, the company has worked to increase sales of its premium products. In its second quarter 2021, cameras with retail prices of at least $300 made up 94% of camera revenue. That's up from 62% of total revenue in 2018 and 90% in 2019 prior to pandemic impacts.
The company's second focus has been to increase its subscriber membership and online revenue from GoPro.com. At the close of the second quarter, the company had over 1.1 million subscribers, an increase of 211% versus the prior year. And GoPro.com revenue grew 48% year over year to become 35% of total revenue. With a clear path to improved growth, it's not surprising that users of the Robinhood app would want to own shares of what is also a popular and well-known product.
A unique shareholder base
Not long ago, AMC Entertainment (AMC -8.81%) was one of the hardest hit companies during the pandemic and looked like it may not survive. But a younger crowd that may have invested for the first time through apps like Robinhood decided to make driving the company's stock their mission. That gave CEO Adam Aron an opportunity to take advantage of what most see as a disconnected share price to raise money and take bankruptcy off the table, at least in the short to medium term.
Aron embraced the social media users who gave the company meme status and a rapidly rising share price. He led billions of dollars in capital raises, including another $1.25 billion in the second quarter of 2021 alone. Those retail shareholders who made AMC a meme stock now represent about 80% of company ownership, and Aron has reached hero status among them.
The business itself is in better shape in part thanks to the company's now-healthy liquidity position. It recently acquired two popular movie theaters in the Los Angeles area that had yet to reopen from pandemic closures. And Aron has said the company will continue to use its liquidity to improve and grow.
But the company is still bleeding money, with more than $250 million in negative free cash flow in the quarter ended June 30, 2021, and $5.5 billion in corporate debt. And with the return of movie theater popularity still in question as more and more films are being released to streaming services sooner, AMC hasn't presented a business recovery plan.
The retail traders have seemingly been holding the stock price up, with AMC now at a market cap of about $21 billion. Those investors are playing the stock more like a casino game. And long-term observers should expect to see either a drastic change in the business to support the valuation, or a drop in shares to more accurately match the business fundamentals. AMC is one popular Robinhood stock that either should be held only with gambling money, or shouldn't be in a serious long-term investment portfolio.