Morgan Stanley says Robinhood could be Generation Z's Schwab, but the stock is going nowhere for now

Published Wed, Mar 30 20228:46 AM EDT

Robinhood shares will likely stay rangebound in the near term, but it's long-term outlook seems promising, according to Morgan Stanley. Analyst Michael J. Cyprys initiated coverage of Robinhood with an equal-weight rating, saying in a Wednesday note to clients that the trading app has a firm grip over millennials and Generation Z, but will need to expand its product offerings if it wants to retain its appeal. "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," Cyprys wrote. "The financial 'super app' the company envisions can offer a full suite of financial services products with significant revenue potential, just as SCHW [Schwab] has met the needs of the baby boomers and Gen X." Morgan Stanley issued a $15 price target for Robinhood, which is about 5.7% below Tuesday's closing price of $15.91 for the stock. The firm added that it's bullish on Robinhood's long-term outlook. If Robinhood continues to generate user growth as it has in the past few years, it will continue to gain importance as a financial services company. The company has 22.7 million user accounts, the note said. More than half, or 57%, of users on Robinhood are in the Generations Y and Z demographics. This represents roughly 9% penetration by Robinhood into the age group, just as Schwab has gained about 10% to 12% penetration of baby boomers, according to Morgan Stanley. However, Robinhood faces several challenges in the near term, analysts say. Shareholders are less likely to stick around for profitability from Robinhood in a high interest environment, the note said. The company also faces more negative sentiment after the stock price tumbled 80% from its peak last summer. In a separate note, JPMorgan lowered its estimates for Robinhood and maintained its underweight rating. Analysts said Wednesday that user account growth has been dampened by the steep market selloff. JPMorgan lowered earnings per share estimates to a loss of 34 cents in the first quarter. Shares for Robinhood slipped 1.8% in Wednesday premarket trading. —CNBC's Michael Bloom contributed to this report.

Robinhood app

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Robinhood shares will likely stay rangebound in the near term, but it's long-term outlook seems promising, according to Morgan Stanley.