By Sam Boughedda
JPMorgan analyst Ken Worthington cut Robinhood's (NASDAQ:HOOD) price target to $7 per share from $11 Tuesday, lowering estimates for the company based on lower margin balances and a weaker outlook for activity levels.
The analyst said the lowering of its estimates follows the release of the brokerage's May metrics, which were consistent with its view published in its May research note, “Robinhood Customer Underperformance Could Weigh on Activity for an Extended Period."
"For the month, Robinhood generated $1.5bn of net sales, a 22% organic growth rate. However, in [a] flat market in May (S&P500 was up 18bps), Robinhood clients were down 900bps. Margin balances also fell for the month by 20% to $4.2bn," said Worthington. "We now give Robinhood credit for $1bn of excess cash versus $2.5bn previously reflecting comments by the CFO on excess liquidity."
The analyst maintained an Underweight rating due to the continued market deterioration and regulatory risks rising.
"While the founders have leveraged innovation, guts, and ideal market conditions to build a leading US retail broker, we do not see growth as sustainable, and we question the ability of the company to generate competitive margins over time given the focus on such small accounts that have limited room to be profitable," concluded Worthington.