Bank of America says 'perfect storm' for Robinhood is over, growth harder to achieve

Published Thu, Dec 16 20216:19 AM ESTUpdated Thu, Dec 16 20216:32 AM EST

Stock trading app Robinhood will have a harder time achieving growth as pandemic-related tailwinds reverse, Bank of America said as it initiated coverage of the company Wednesday. The "Covid-19 pandemic created a near perfect storm for HOOD," BofA's Craig Siegenthaler wrote. "As individuals see lower or negative returns in their Robinhood accounts and return to their offices, we estimate HOOD's organic growth and trading activity could face a multi-year headwind as client engagement fades." BofA gave Robinhood an underperform rating and a price objective of $22 per share, 12.8% higher than the stock's close on Wednesday. Shares rose 2% in premarket trading Thursday. Stock market volatility, government stimulus, a bull market and remote work all fueled the company's growth during the pandemic, according to BofA. But these tailwinds are retreating and Bank of America believes the stock valuation may be underappreciating the reversal. Robinhood's market share among its target audience of first-time, young investors is already high, BofA noted. Robinhood has about 23 million accounts in a population of 66 million U.S. adults ages 20 to 34. "This implies future account growth in the US will be harder to generate," Siegenthaler said. Plus, BofA highlighted that regulatory risks persist. Robinhood generates a majority of its revenue from payment for order flow, the back-end payment brokerages receive for directing clients' trades to market makers and a focus for regulators . The company's expansion into cryptocurrencies also could be impacted by regulation, BofA said. However, BofA is positive on Robinhood's longer-term growth as new potential clients come of age every year and existing clients accumulate more wealth over time and as the app could potentially expand outside of the U.S. "We believe HOOD's growth will come in waves, triggered by new product launches and market volatility. New capabilities including future IRA launches and extending trading hours could encourage larger client inflows in future quarters," Siegenthaler said. Robinhood's stock is down more than 48% since its public debut in July at an opening price of $38. —CNBC's Michael Bloom contributed reporting.

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Stock trading app Robinhood will have a harder time achieving growth as pandemic-related tailwinds reverse, Bank of America said as it initiated coverage of the company Wednesday.