Home Stock exchange Why Robinhood may be more than a “memes stock phenomenon”

Why Robinhood may be more than a “memes stock phenomenon”

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Shares of Robinhood Markets Inc. are higher on Monday after drawing a handful of new Wall Street fans who praised the company’s unique positioning.

At least eight Wall Street analysts have started covering Robinhood’s HOOD headline,
+ 8.49%
Monday, based on FactSet data and MarketWatch analysis. Half of them gave the equivalent of purchase scores. Shares are up 5.1% in Monday afternoon trading.

Even the most optimistic analysts acknowledged that Robinhood is a controversial story, but many were willing to look beyond current debates over things like the mix of company options and the practice of paying for order flow. because they focused instead on the company’s desirability to grow beyond stocks. trading in banking functions and other financial “super-applications”.

“With 22.5 million active users and 50% recovery of all new retail accounts in the United States, we see Robinhood not as a stock market phenomenon, but as a singularity that captures the times. Generation Z, ”Mizuho analyst Dan Dolev wrote in a note to clients.

Dolev’s research has indicated that Robinhood’s exposure to options is “less dramatic than feared,” a point he said should address investor concerns about whether Robinhood’s user base “” bets “more than” invests. “is less exposed to stocks memes and” homogeneous “business trends than some investors may fear.

“Providing a single app with features like banking, debit, credit and other functionality is in our view the main future opportunity for Robinhood,” he continued. The total addressable markets for bank accounts in the United States is perhaps 500 million accounts, which suggests to him that Robinhood currently only serves less than 5% of its potential customer base.

Adding new products and services could help Robinhood more than double its average revenue per user over time, according to Dolev, who launched a cover with a buy rating and a target price of $ 68.

Rosenblatt Securities analyst Sean Horgan also wrote that investors seemed to misunderstand the story of Robinhood. “Net / net, we believe that viewing Robinhood in the context of the old online brokers lacks completeness and overlooks the opportunity it has to capture a large chunk of major US bank accounts,” said he wrote.

Horgan added that “the scale is extremely bullish for us” as he assesses Robinhood’s opportunities. He and his team “appreciate the merits of the bear case (particularly the headwinds of declining industry transaction volumes)”, but are optimistic about Robinhood’s potential to capture a significant slice of the $ 140 billion. dollars of banking income to consumers in the United States.

Horgan has compared the company to a number of popular names in the tech world. Like Apple Inc. AAPL,
+1.23%,
Robinhood has a valuable user interface because its “simple, intuitive and non-intimidating platform” makes it easy for novice investors to get started in trading. And like Square Inc. SQ,
+ 3.13%,
the company has a “very engaged” user base trying out “high interaction products like stock / crypto trading” that Robinhood could potentially translate into new monetization opportunities.

The company has already rolled out a cash management feature that provides users with Robinhood debit cards. Square offers a “playbook,” because the fintech company has had success with its Cash Card debit card, Horgan said. He started hedging Robinhood stocks with a buy rating and a target of $ 55.

See also: Why did Visa just buy a “CryptoPunk” NFT for $ 150,000? Payments giant wants “a seat at the table as the crypto economy evolves”

JMP Securities analyst Devin Ryan took a similar point of view. “Robinhood is clearly best known for its trading platform, becoming in some ways synonymous with millennial trading, but its broader vision is to democratize access to financial services internationally far beyond mere investment, and become one of the world’s leading one-time money apps, ”he wrote.

While other companies are also aiming to provide a unified application for various elements of financial services, Robinhood has key advantages, according to Ryan.

“Robinhood has grown considerably more than most, it is vertically integrated in a number of areas that allow it to control its own destiny (vs. depend on decisions and the sustainability of relationships with third parties), and it controls more of the economic flow within each company, which can be used to obtain better prices for customers, invest in other parts of the business model, or create better financial results for other stakeholders ” , he continued.

Ryan has set a market outperformance rating and a target of $ 58 on the stocks.

While Barclays analyst Ross Sandler also applauded Robinhood’s opportunity as he pursues the ‘super-app’ vision, he wasn’t ready to jump on the bull bandwagon. Its equally weighted rating reflected “lack of confidence in projections and regulatory uncertainty”.

Sandler noted that “the vast majority of HOOD’s income comes from the highly scrutinized practice of payment for order flow” and explained that “in a simplistic way, PFOF income is generated when brokers like HOOD receive fees. to direct trades to a market maker instead of directly to the exchange.

In the midst of the PFOF’s regulatory review, Sandler doesn’t think it will go away “just yet” but sees it as “definitely a risk to watch out for.” Further, he commented that within Robinhood’s PFOF revenue stream, three companies constitute a high concentration of revenue.

“While on the one hand it is fair to assume that these relationships are mutually beneficial, on the other hand it is of concern that these three entities account for such a large portion of HOOD’s revenue – and carry even more concentration risk. great over time, ”Sandler wrote. .

The stock has gained 28.7% since it closed at $ 34.82 on the first day of trading on July 29, while bitcoin has climbed 24.0% BTCUSD,
+ 2.38%
the S&P 500 SPX index,
+ 1.01%
gained 1.5% over the same period.

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