Why Robinhood could also be greater than a ‘meme inventory phenomenon’
Robinhood Markets Inc.’s shares rose Monday after gaining a handful of new fans on Wall Street who praised the company’s unique positioning.
At least eight Wall Street analysts began reporting on Robinhood stock HOOD on Monday, + 5.65% based on FactSet data and analysis from MarketWatch. Half of them gave the equivalent of purchase ratings. Shares were up 5.1% in afternoon trading on Monday.
Even the most optimistic analysts acknowledged that Robinhood is a controversial story, but many were willing to look beyond the current debates about things like the company’s mix of options and how it was paid for the flow of orders, as they instead focused on the company’s ability to move beyond the stock grow beyond trading banking and other financial “super-app” functions.
“With 22.5 million active users and 50% of all new US retail accounts, we don’t see Robinhood as a meme stock phenomenon, but rather as a singularity that captures the Zeitgeist of Generation Z,” Mizuho analyst Dan Dolev wrote in a customer note.
Dolev’s research found that Robinhood’s exposure to options is “less dramatic than feared” is less exposed to meme stocks and “homogeneous” trading trends than some investors may fear.
“Offering a single app with functions such as banking, debit, credit and other functions is, in our view, the most important future opportunity for Robinhood,” he continued. The total addressable markets for bank accounts in the US runs to perhaps 500 million accounts, which for him suggests 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 initiated reporting with a purchase rating and a price target of $ 68.
Rosenblatt Securities analyst Sean Horgan also wrote that investors appear to have misunderstood the Robinhood story. “Netto / net we believe that we are lacking completeness to see Robinhood in the context of the old e-brokers and are overlooking the possibility of capturing a large part of the primary bank accounts in the US,” he wrote.
Horgan added that “the scale is overwhelmingly optimistic for us” when assessing Robinhood’s odds. He and his team “appreciate the merits of the bear fall (especially the headwinds from declining trade in the industry)” but are optimistic that Robinhood can generate a significant portion of US $ 140 billion in retail banking revenues
Horgan compared the company to a number of trending names in the tech world. Like Apple Inc. AAPL, + 1.08%,
Robinhood has a valuable user interface as its “no frills, intuitive and non-intimidating platform” makes it easy for first-time investors to get started. And like Square Inc. SQ + 3.40%,
The company has a “very engaged” base of users trying out “high-touch products like stock / crypto trading” that Robinhood could eventually translate into new monetization opportunities.
The company has already implemented a cash management feature that gives users Robinhood debit cards. Square is offering a “playbook” there as the fintech firm has been successful with its cash card debit card, Horgan said. He began reporting on Robinhood stock with a buy rating and a target of $ 55.
See also: Why did Visa just buy a ‘CryptoPunk’ NFT for $ 150,000? The payment giant wants “a seat at the table while the crypto economy develops”
JMP Securities analyst Devin Ryan took a similar view. “Robinhood is clearly best known for its trading platform, which in some ways is becoming synonymous with millennial trading, but its larger vision is to democratize access to financial services internationally beyond just investing and become one of the world’s leading single money” – Providers to become apps’ ”he wrote.
While other companies also strive to provide a unified app for different elements of financial services, Robinhood has key advantages, according to Ryan.
“Robinhood has scaled far more than most, it’s vertically integrated into a number of domains that allow it to control its own destiny (as opposed to being dependent on decision-making and the viability of relationships with third parties), and it controls more of the economic flow within any company that can be used to get better prices for customers, invest in other parts of the business model, or get better financial results for other stakeholders, ”he continued.
Ryan set a market outperformance rating and a target of $ 58 for the stocks.
Although Barclays analyst Ross Sandler also hailed Robinhood’s chance by pursuing the “super app” vision, he wasn’t ready to jump on the bull train. Its equally weighted rating reflected “lack of confidence in the forecasts and regulatory uncertainty”.
Sandler noted that “the vast majority of HOOD revenue comes from the much-studied practice of paying for order flow” and stated that “PFOF revenue is put simply when brokers like HOOD charge fees for referring trades to a market Maker received instead of directly “for exchange.”
In the midst of regulatory scrutiny of PFOF, Sandler does not believe it will “go away immediately” but sees it as “definitely a risk to monitor”. He also noted that within Robinhood’s PFOF revenue stream, three companies are highly concentrated in revenue.
“On the one hand, these relationships can be assumed to be mutually beneficial, but on the other hand, it is worrying that these three companies make up such a large portion of HOOD’s revenue – and have an even greater risk of concentration over time,” Sandler wrote .
The stock is up 28.7% since it closed at $ 34.82 on its first day of trading on July 29, while Bitcoin is up 24.0% in BTCUSD, + 2.34% on the S&P 500 SPX and +1 .00% increased by 1.5%.