Evercore ISI raised valuation concerns, saying Robinhood’s current share price may not completely reflect both sustained deposit monetization and expansion in newer companies.
- Evercore ISI initiated coverage for Robinhood with an ‘Outperform’ rating on Monday.
- Analyst Adam Frisch pointed to Robinhood’s growing user and deposit base, which were among the reasons for the rating.
- Evercore reportedly said Robinhood’s pricing power and capacity to earn $100 million in revenue from 13 products, including prediction markets and Chain, were potential growth levers.
Shares of Robinhood Markets (HOOD) edged higher in morning trade on Monday after Evercore ISI initiated coverage for the firm citing the trading platform’s prediction markets and crypto businesses as potential drivers of future growth.
According to TheFly, the financial firm began coverage with an ‘Outperform’ rating and a price target of $130. That implies around 19% upside from the $109.02 close on Friday.
Evercore ISI analyst Adam Frisch said in a note to investors that Robinhood was “a very impressive company” that created a significant user and deposit base in “in a relatively short period of time.” His thesis is around what he calls a product flywheel with world class user experience, with the aim of making the platform a “one stop shop” for financial services.
New Products And Pricing Strength Support Robinhood’s Growth Thesis
According to a detailed note from Investing.com, Robinhood’s lesser reliance on cash spreads provides some protection against structural challenges, while its pricing is among the best in the business across a wide range of products.
The case is further supported by data from new products. Frisch said Robinhood has grown its revenue from 13 unique offerings to $100 million in a relatively short period of time. Added to early-stage enterprises in prediction markets and Chain, he said that the record allows the stock to maintain its premium price.
HOOD stock was trading up over 0.1% in morning trade. On Stocktwits, retail sentiment around HOOD remained in the ‘bearish’ zone, accompanied by ‘normal’ chatter levels over the past day.
Growth And Monetization Risks Remain
Evercore also reportedly said it considered waiting for a lower entry point to begin coverage, and sees growth and cost control as the next big step in the next year or so.
Its valuation argument relies on what’s already baked into the present price. At these levels, the shares discount either consistent near term deposit and monetization trends or considerable growth in prediction markets, international, institutional and Chain, but not both, Evercore stated.
Wall Street Targets Point To More Upside For HOOD
Evercore’s target sits slightly below where the rest of the Street already is. The average analyst price target on Robinhood stands at $134.68, with estimates ranging from $57 to $170, leaving a gap of about 23% between the consensus target and where the stock traded on Monday.
Morgan Stanley also raised its price target on Robinhood and other crypto equities last week to $160 from $150 and maintained an ‘Overweight’ rating. Concerns regarding broker cash balances and artificial intelligence could be “overdone”, analyst Michael Cyprys added. He said that higher interest rates could also boost broker revenues.
Robinhood stock is down over 3% so far this year, and lost over 21% in the last 12 months.
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