Robinhood could be the “Schwab” of millennials and Gen Z. Execution is key.

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The time of dreams



Robinhood Markets

could be the


Charles Schwab

for Millennials and Generation Z, according to Morgan Stanley. But first, the online brokerage faces a host of near-term challenges – from rising interest rates to increased competition, analysts said.

Morgan Stanley launched the cover of Robinhood (ticker:


HOOD

) shares on Wednesday with an equal weight rating and a price target of $15. Analysts believe Robinhood could evolve into a financial “super app” that provides a suite of financial services to young people as they age into their prime earning and savings years.

Already, the app has strong popularity among Millennials and Gen Z users, with Morgan Stanley estimating that around 57%, or 13 million, of its customers belong to this demographic. User growth has been quite rapid – from just 5 million accounts in 2019 to around 23 million today. The market share may continue to improve as the company launches new products, such as spending, saving, investing and lending products. Analysts believe Robinhood could launch retirement products during the rest of 2022.

But this long-term vision hinges on the company’s ability to execute.

“2022 is a transition year where we need new product introductions to reinforce our belief that HOOD can fulfill its potential, so we are launching EW [equal-weight]wrote the team of analysts led by Michael Cyprys.

In the short term, analysts still see a challenging environment for Robinhood. On the one hand, while the company sees itself as a super app, there is significant competition from other fintechs, such as


PayPal

and


To block
,

and large-scale incumbent financial players, such as Fidelity, Schwab and Vanguard, they said.

Indeed, in recent quarters, Robinhood has struggled to grow its customer base as new additions have slowed. The company only gained 200,000 net customers in the second half of 2021. For comparison, Schwab added 900,000 over the same period.

Tough comparables could last well into 2022 as trading volume between retail traders declines amid market volatility fueled by inflationary pressures, rising interest rates and geopolitical risks, the analysts added. analysts.

It doesn’t help that most of the app’s user base is still a few years away from achieving top-notch revenue and savings, which means Robinhood will have to rely on investors to subsidize the company’s near-term strategic growth plans, analysts said. This can be difficult in a higher interest rate environment, where investors avoid speculative growth stocks.

Wall Street sentiment on Robinhood has been mixed recently, with 53% of analysts covering the stock rating it Hold, 33% rating it Buy and 13% Sell.

In February, analysts at Mizuho said they were maintaining a buy rating on the stock as they believed the stock had bottomed out and could turn the page soon.

Robinhood has fallen 10% this year. Shares slid 5% to $15.06 on Wednesday. They rose on Tuesday after the investing app announced it would allow customers to buy and sell stocks from 7 a.m. to 8 p.m. Eastern Time.

Write to Sabrina Escobar at [email protected]

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