Robinhood Analyst: Trading App Could Be Gen Z's Charles Schwab, But Faces These Near-Term Pressures

Robinhood Markets, Inc. HOOD shares rallied Tuesday after the trading app announced an extension of trading hours for customers.

The Robinhood Analyst: Morgan Stanley analyst Michael Cyprys initiated coverage of Robinhood with an Equal-weight rating and $15 price target.

The Robinhood Takeaways: Robinhood's customers are likely to expand their relationship with the trading app, as it has established a presence in the retail trading marketplace with a sleek and user-friendly mobile app, offering free stock, options and crypto trading, Cyprys said in a note.

Just as Charles Schwab Corporation SCHW has met the needs of the baby boomers and Gen X, Robinhood has appealed to the Gen Y/Z demographic, the analyst said.

Of the total 22.7 million accounts, about 57% or 13 million of Robinhood customers belong to the Gen Y/Z demographic, giving it a penetration of 9%, he said. 

"We see a significant opportunity for HOOD to grow with this ~150m Gen Y/Z demographic as they age into their prime earning and savings years." 

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Execution is key, according to the analyst. This would mean building out a broader set of offerings beyond trading to capture the Gen Y/Z market opportunity, he said. 

The analyst expects Robinhood to grow accounts at 6% CAGR through 2024, below the consensus expectation of 13%, as competition likely weighs on user growth.

The average revenue per user will expand by $25 to $115 in 2024, roughly four times the consensus, Cyprys estimates. 

"2022 is a transition year where we need new product introductions to increase our conviction that HOOD can realize its potential." 

Morgan Stanley said it sees near-term challenges and lack of visibility, but is bullish on Robinhood's long-term potential and opportunity.

HOOD Price Action: Robinhood shares were sliding 7.5% to $14.72 Wednesday afternoon, according to Benzinga Pro. 

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