robinhood markets stock could rise nearly 40 as its users deposit more money on the platform and start to branch out into new products and markets an analyst wrote in a report published tuesday redburn analyst charles bendit initiated coverage of the stock with a buy recommendation and fair value of 6535 few other analysts have weighed in yet because the banks that worked with robinhood ticker hood on its initial public offering last month are restricted from offering an opinion on the stock for several weeks robinhood stock briefly crossed 65 in its second week of trading but has since declined it was down 11 on tuesday to close at 4667 a major debate about robinhood is whether it is a “play money” account that people use to make bets on long shot stocks and crypto or whether it is a core account that people will use to build their financial lives bendit leans toward the latter he expects that the assets deposited on robinhood’s platform will grow quickly over the next few years as the company’s customers get wealthier and robinhood expands into areas like retirement accounts while robinhood accountholders have 4500 on average in their accounts today a fraction of the average account size at other brokers bendit expects that to rise as millennials get wealthier that generation now holds about 5 of the nation’s wealth but is expected to hold 16 by 2030 robinhood’s net deposits have been increasing over time with average cumulative net deposits of customers increasing by 41 times over a twoyear period for those who started investing between 2017 and 2020 there is also a large unaddressed market that could allow robinhood to keep growing at its current torrid pace about 60 of americans have no investments beyond their retirement accounts and 68 of 18 to 29yearolds have no money in the market at all that’s a large cohort of people who could be drawn into the market in bendit’s view bendit expects robinhood to start posting regular profits in 2022 after losing money this year but he views revenue as the best way to value the stock using a method that involves valuing robinhood’s cash flow and its revenue compared with its enterprise value he comes to the 65 valuation the analysis assumes robinhood’s rapid growth continues though not quite at the rate of earlier this year bendit thinks robinhood’s customer base can grow to 38 million from 225 million at the end of the second quarter and its average customer balance to 8100 by 2025 its assets under custody meanwhile should rise to 308 billion from 102 billion according to his calculations he sees revenue of 46 billion by then with transactions still accounting for 78 of that and net interest income 16 bendit notes that robinhood’s business model relies heavily on one funding source that is now under threat from regulators robinhood makes about threequarters of its revenue from payment for order flow which are payments it receives for sending customer trades to market makers congress and the securities and exchange commission are now taking a closer look at the practice which is banned in parts of europe because of concerns it creates conflicts of interest that could harm customers bendit expects some changes to the rules for payment for order flow but nothing particularly drastic that would squash robinhood’s business model