Robinhood’s shares (NASDAQ: HOOD) experienced a boost on Monday after Bernstein analyst Gautam Chhugani increased his price target for the financial services company, largely due to its expanding presence in the prediction market sector.
In a recent report, Chhugani maintained an “outperform” rating for Robinhood while adjusting his price estimate upward to $160 from $130, indicating a potential upside of around 60% compared to Robinhood’s closing price on July 17.
Recognized for its rapid growth in event contracts, Robinhood has indicated this segment may eventually emerge as the fastest-growing component of its offerings. The analyst anticipates a remarkable 64% annual growth for Robinhood’s prediction market segment, projecting revenues could hit $1.7 billion by 2028.
Chhugani emphasizes that Robinhood stands out among brokerage firms, well-positioned to capitalize on the rise of prediction markets, perpetual futures, tokenized equities, and other innovative market opportunities. He notes that the upcoming second quarter may mark the first time Robinhood’s prediction market revenue surpasses that of its cryptocurrency operations, with updates expected during the company’s quarterly results announcement on July 29.
Robinhood’s World Cup Success
Similar to some competing yes/no exchanges, Robinhood profited from the World Cup, which accounted for 27% of the regulated U.S. sports betting market since it commenced last month.
Before the tournament kicked off, Robinhood stated it would channel World Cup trades through Rothera, along with some Major League Baseball contracts. Rothera functions as a separate entity in which both Robinhood and significant market maker Susquehanna International Group invest.
As of July 10, Rothera had processed $3 billion in World Cup event contracts, with records showing volume spikes during key matchups, suggesting that the semifinals and third-place match, along with the championship game, experienced similar surges in trading activity. Given that Rothera began accepting trades in May, capturing a substantial portion of the World Cup betting is quite an achievement.
Analysts believe the collaboration between Robinhood and Susquehanna is beneficial for Rothera, as the market maker utilizes its expertise to enhance liquidity and maintain tight spreads, enabling Rothera to, on occasion, undercut competitors on fees. Chhugani from Bernstein estimates that since Rothera’s launch, it has handled over 3.5 billion event contracts, with the World Cup contributing to 93% of the total.
Potential for Rothera Growth
Robinhood has additional advantages to keep investors excited about prediction markets. Firstly, as noted by Chhugani, Rothera currently only represents 16% of Robinhood’s overall prediction market volume. This figure has the potential to grow, which could enhance both revenue and overall financial outlook.
Moreover, enthusiasm for prediction markets is rising among investors, particularly retail investors, yet few public companies operate within this swiftly growing industry. As a well-known name in the retail investment sphere, Robinhood stands out as a key player.