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Stocks popular among retail investors are being particularly roughed up as tech and growth assets deflate amid rising inflation and tighter monetary policy.
"Retail investors are just ditching growth stocks — any kind of risky investments right now," S&P Global Market Intelligence Senior Research Analyst Tom Mason told Yahoo Finance Live on Wednesday (video above). "I think what we're seeing on the retail side is like the broader market, where people are reallocating. So they're just— they're not necessarily leaving the market entirely. They're just going into less risky investments."
Robinhood shot up to $85 per share just days following its IPO in July 2021. The investing platform that was at the center of the meme stock phenomenon in 2021 has seen a sharp slowdown in activity amid an overall market downturn this year.
Robinhood stock fell below $7 per share in midday trading Thursday.
Mason said the company should pivot "to actually acquire a bank... so that they would get more deposit income — any kind of net interest revenue."
Another idea would be to establish a more stable revenue base through asset management.
"Robinhood needs to grow along with their customers," Mason stressed. "I think that asset management would make total sense, as millennials get older and start to think more about wealth planning."
Robinhood, like other brokerage firms, brings in a portion of its revenue through Payment For Order Flow (PFOF). The practice is essentially commission for directing customer orders through market makers. SEC chairman Gary Gensler has telegraphed new rules surrounding PFOF could be coming.
Mason said Robinhood's stock could be halved if the practice were to be banned.
"Since Robinhood makes up about half of its revenue from payment for order flow," he explained, "it also has some crypto transaction rebates, some fees from options trading — but I think that would... cut the stock in half at least."
Ines is a markets reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre