Shares of Robinhood (HOOD) surged over 10% on Wednesday following the company’s announcement to expand its rapidly growing prediction markets product line. This increase in stock value came after the trading platform revealed plans to launch a new futures and derivatives exchange in collaboration with market maker Susquehanna International, designed to enhance its offerings in prediction markets, where users can wager on various outcomes including sports results and decisions made by the Federal Reserve regarding interest rates.
Robinhood first ventured into prediction markets last year through a partnership with Kalshi. Since then, the platform has seen impressive user engagement, with over 9 billion contracts traded by more than 1 million users. Analysts from Bernstein, in their assessment, noted that while Robinhood is likely to continue distributing Kalshi products, this new initiative will allow the company to take on more event contracts directly, further strengthening its market presence.
The stock’s performance has been robust, with an increase of 215% year to date, making Robinhood the second-largest gainer on the S&P 500 index thus far in 2023. The company was officially added to the index in September, which has contributed to its growing visibility among investors.
Gautam Chhugani, an analyst at Bernstein, commented that Robinhood controls more than 50% of Kalshi’s market volumes and is seeking to leverage its distribution capabilities to capture a larger portion of the market revenue. Bernstein maintains a “Buy” rating on Robinhood stock, issuing a price target of $160.
The analyst highlighted Robinhood’s active trader base of 14 million as a strategic advantage, providing an ideal demographic for prediction markets. This demographic alignment allows Robinhood to make bolder moves in claiming its share of the revenue pool. Bernstein projects that the platform could generate over $300 million annually from event contracts.
In the partnership with Susquehanna, the latter will act as a liquidity provider, an essential function for maintaining price stability in trading. Robinhood emphasized that this new exchange would offer increased choices for consumers, enhancing the flexibility to deliver more contracts and services rapidly.
Overall, Robinhood’s latest expansion efforts reflect its commitment to innovate within the trading landscape while capitalizing on its growing user base and market demand.
