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Street Starts Robinhood (HOOD) Coverage With Mixed Views, Concerns Centered Around Payment for Order Flow and Unsustainable Retail Trading Levels

August 23, 2021 6:31 AM EDT
Get Alerts HOOD Hot Sheet
Price: $9.11 +13.88%

Rating Summary:
    8 Buy, 4 Hold, 3 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 12 | Down: 18 | New: 23
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At least 11 Wall Street firms have initiated their coverage of Robinhood (NASDAQ: HOOD) today. Seven analysts started with a “Buy” or equivalent rating while four firms, namely Wolfe, Barclays, Goldman Sachs, and Piper Sandler, opted to stay on the sidelines.

HOOD shares made a public debut on July 29, when they closed over 8% lower before a big rally was staged that yielded a record high of $84.98. Shares were likely pushed higher by the Reddit crew as this rally quickly faded.

Goldman Sachs analyst Will Nance started with a “Neutral” rating and a $56.00 per share price target.

Although he is overall positive and constructive on the business, he outlines two key factors that kept him on the sidelines: 1) near-term uncertainty around the sustainability of retail trading levels, and 2) the ongoing overhang around payment for order flow, which could result in headline risk or in a worst case, significant estimate risk.

“We believe HOOD is well positioned to continue to see best-in-class user growth, leveraging its innovative referral program and strong word-of-mouth customer acquisition. In addition, we expect HOOD to increasingly focus on cross-selling its already considerable user base with additional financial services products, driving ARPU expansion over time and boosting growth in both the top line and AUC. While we expect cross-selling to be a multi-year initiative, in the near term we see 1) its IPO access product and 2) its fully paid securities lending product as somewhat nearer-term catalysts, while its cash management and crypto initiatives should provide further runway over time,” Nance said in a client note.

Robinhood has been attracting much attention as a significant amount of its revenue comes via payment for order flow regulation (PFOF).

“If regulators curtail or prevent payments for retail order flow, HOOD would face a significant reduction in revenue. We believe this riskis disproportionately skewed to the downside, although HOOD could see its multiple increase if the market becomes more confident that PFOF will not be regulated,” the analyst adds.

On the other side, Mizuho’s Dan Dolev started with a “Buy” rating and a $68.00 per share price target. “Robinhood is not a meme,” says Dolev in a client note.

“With its 22.5mn active users and fetching 50% of all new retail US accounts, we view Robinhood not as a meme stock phenomenon, but as a singularity that captures Generation Z's zeitgeist. Critics argue that HOOD bears outsized risk due to elevated options trading and user 'herd mentality'. We disagree. Our research shows that the differences between HOOD's mix of options and non-S&P stocks vs. peers are less dramatic than feared. We believe a TAM of 500mn US bank accounts, 2x ARPU upside potential, success in cash management, and becoming a single money app make HOOD attractive,” Dolev said.

Similarly, KeyBanc analyst Josh Beck started with an “Overweight” rating and a $55.00 per share price target.

“Robinhood is democratizing investing for an emerging generation en route to establishing a more fully-fledged FinApp leveraging disruptive technology principles effectively bending the CAC curve (<1/10th) driven by viral internet-like scaling in a ~$60T TAM. While we do not expect a linear journey provided the exponential growth (~17x user growth), regulatory evolution, and market volatility correlation, we are constructive on HOOD's prospects due to: 1) strong engagement; 2) multi-product uptake; 3) innovation velocity; and 4) management team,” the analyst commented in a report on HOOD.

Shares of Robinhood are up over 2% in pre-open Monday.

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