Why This Robinhood Analyst Says App Captures Gen Z's 'Zeitgeist'

Robinhood Markets, Inc. HOOD went public in late July, and the stock has seen much volatility since its listing.

The Robinhood Analyst: Mizuho Securities analyst Dan Dolev initiated coverage of Robinhood shares with a Buy rating and $68 price target.

The Robinhood Takeaways: Robinhood, with 22.5 million active users and capturing about 50% of all new retail U.S. accounts, isn't a "meme stock" phenomenon, Dolev said in a note.

It's rather a singularity that captures Generation Z's "zeitgeist," the analyst said. 

While investors worry about Robinhood's high options mix, options accounted for 37% of shares traded but 60% of the revenue mix, he said. This anomaly, Dolev said, is due to options being 2.5 times more profitable than stocks.

"Moreover, the difference in option mix between HOOD and peers may be less dramatic than feared, about 600-700bps ahead of E-Trade."

The analyst also noted that as opposed to widespread belief that Robinhood is heavily reliant on meme stock trading, the evidence shows it has a balanced share mix.

Related Link: Robinhood Files For 97.9M-Share Common Stock Offering: What Investors Need To Know

Offering a single app with features such as banking, debit, credit and other features is the key future opportunity for Robinhood, he said.

The total addressable market opportunity for bank accounts in the U.S. is 500 million accounts, Dolev said. Robinhood is tapping less than 5% of its potential user base, the analyst said. 

Additional products and services indicate the company's average revenue per user can increase by over two times from about $110 to over $200 over time, he said. 

Although Robinhood still has a long way to go to become a single money app, some recent successes include its cash management product, which already has more than 5 million customers, Dolev said.

"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." 

Mizuho sees 40%-50% two-year growth and values the company at 14 times 2023 revenue.

HOOD Price Action: Robinhood shares were up 3.54% at $44.15 at last check Monday. 

Related Link: PreMarket Prep Stock Of The Day: Robinhood