24-hour trading won't help Robinhood financially in the near term, Morgan Stanley says

Published Fri, May 12 202310:14 AM EDT

Robinhood's launch of 24-hour trading grabbed much attention, but it won't likely provide any material lift for the company's financials, according to Morgan Stanley. The millennial-favored trading app announced Wednesday that it will offer 24-hour trading of selected stocks and exchange-traded funds, five days a week. Morgan Stanley believes it's too early to tell if it will be a hit for its customers or if it would just be marketing puffery. "While we don't think 24/5 trading in itself will be a significant needle-mover for HOOD near-term – revenues haven't befitted materially since the company introduced hyper extended hours, and thin liquidity could be a concern – launch and accompanying marketing and press coverage could drive new customer growth and increase engagement on the platform," the Wall Street firm said in a note Friday. The firm maintained its equal-weight rating on the stock. Its 12-month price target of $12 is about $2 higher than where it's currently trading. HOOD YTD mountain Robinhood Morgan Stanley said the 24-hour trading offering from the commission-free app could also raise questions about liquidity and how the broker can provide best execution for trades. Trading volumes are typically thin outside of normal trading hours, and activities could trigger price swings more easily. "This will likely generate questions around how they demonstrate and satisfy best execution requirements for clients if there's limited liquidity before the markets open, and/or situations where trades are executed at significant deviation from the prior close and the next open," Morgan Stanley said. Robinhood has lost some of its luster after the pandemic trading boom among retail investors faded. The stock lost 54% last year and has bounced back about 15% year to date. The retail brokerage reported a revenue beat earlier this week, while showing growth in monthly users, which hit 11.8 million. "For now, 24h trading is more strategically important for HOOD, than financially, but perhaps that can evolve over time as liquidity builds in the after-market hours, which will take time, and customer trading patterns evolve into the late evenings," Morgan Stanley said.