‘The Data is Not Pretty’: Easy Money Days are Over, Tepid Trading Activity to Continue Hurting Robinhood Even When Markets Recover

J.P. Morgan analyst Kenneth Worthington reiterated an Underweight rating on Robinhood (NASDAQ:) with an $11.00 per share price target.

“The data is not pretty,” says Worthington as woeful market conditions have weighed in heavily on Robinhood’s business. The Q2 data is looking even worse than Q1.

“In both rising and falling markets over the last three quarters and so far in 2Q22, Robinhood investors have both generated negative returns and have meaningfully underperformed the returns of the and . We think that the easy money made by leveraged-long trades in the meme-stock era is over,” the analyst said in a client note.

Worthington expects to see both slower volumes and lower margin balances hurting already negative profitability in the near term.

“Should it persist, account opening with further slow as well the current healthy level of net new accounts. Interestingly, the tepid trading activity could persist even when market conditions recover,” Worthington added.

Moreover, the analyst sees a potential for a tepid trading activity to remain, similarly to the situation that Ameritrade experienced in the late 1990s and early 2000s.

“Ameritrade trading volumes and margin balances fell by ~75% from peak levels in C1Q00 (F2Q00). Interestingly, account balances continued to grow for Ameritrade although the frenzied pace of account openings slowed within 12-24 months.”

By Senad Karaahmetovic