Can Robinhood Shake Up the UK Trading Scene with Its Commission-Free Model?

JMP analyst Devin Ryan reiterated a Market Outperform rating on Robinhood Markets, Inc HOOD with a price target of $23.

Robinhood has announced the launch of its brokerage services in the U.K., entering a market with significant growth potential. 

Ryan estimates there are over 10 million self-directed investors in the U.K., considerably smaller than the U.S. market's estimated 80 million. With lower stock ownership rates than the U.S., the U.K. market presents growth opportunities.

Robinhood's entry is marked by a compelling value proposition, especially given that many U.K. firms charge commissions due to the prohibition of payment for order flow. 

This leaves room for Robinhood to compete effectively with its commission-free trading and potentially more attractive rates on uninvested cash.

While firms like Interactive Brokers offer competitive rates, Robinhood's user experience will likely be a differentiating factor.

The opportunity for Robinhood in the U.K. is threefold, as per Ryan. They include gaining market share in the existing investor market, attracting new investors, including first-time stock owners, and using this as a stepping stone for further international expansion. 

Given the U.K.'s friendlier regulatory environment, the company plans to add more products and services over time, potentially including digital assets.

While the initial financial contribution from the U.K. expansion may be modest due to a smaller market and lower revenue per user, the long-term outlook is more promising. 

Robinhood could significantly grow its customer base, and as the platform evolves, it can leverage its existing infrastructure for better unit economics and profitability. 

The following 3-5 years, the U.K. expansion could substantially contribute to Robinhood's growth and market presence.

Ryan projected Q4 revenue and EPS of $425.8 million (consensus $438.37 million) and $(0.05) (consensus $(0.02)).

Price Action: HOOD shares traded higher by 5.01% at $9.24 on the last check Friday.