Robinhood Now Makes More Revenue From Predictions Than From Stock Trades
The Takeaway
- Robinhood entered prediction markets business in late 2024
- Traders moved into prediction markets as crypto interest waned
- World Cup boosted second-quarter revenue
Brokerage app Robinhood has quickly become a force in prediction markets, challenging the hold of Kalshi and Polymarket on the popular betting market.
Robinhood’s prediction markets revenue surged more than tenfold year over year in the second quarter to $156 million, the company reported last week, as part of its second-quarter earnings update. Prediction markets accounted for 20% of Robinhood’s trading revenue in the quarter, eclipsing both stock and crypto revenue for the first time and becoming its second-largest trading business after options.
That’s a significant change in the company’s revenue mix driven by Robinhood’s less than two-year-old prediction business. It also highlights how speculators have shifted their attention, and their trading activity, from financial markets to real-world events via prediction markets.
Prediction contracts allow traders to bet on outcomes of real-world events like World Cup matches, elections and the weather, offering real-time wagers with a simple yes-no format. That has meshed well with Robinhood’s existing customer base of individual investors, giving them something new to trade as enthusiasm for crypto in particular has cooled.
“The people on Robinhood love gambling, and [the] prediction market is right up their alley,” said Dan Dolev, equity research analyst at Mizuho Securities. “It’s the perfect replacement for crypto because it produces a faster reward system in your brain. You don’t have to wait.”
Kalshi remains the dominant U.S. app for prediction markets and is growing fast, topping $2 billion in annualized revenue in June, up about three times from November. Smaller rival Polymarket has seen much slower growth recently. Based on Robinhood’s second-quarter figures, prediction markets could generate over $600 million in annualized revenue.
Robinhood’s success demonstrates its ability to reinvent its business as markets evolve. The 13-year-old brokerage firm initially gained traction in stock trading thanks to its zero-commission stock and options trades as well as its slick app, which made trading quick and simple. It added crypto trading in 2018, and its mix of trading revenue has tended to shift depending on which assets are hot.
Its equities and options revenue boomed during the meme stock frenzy of 2021, while crypto trading jumped too on meme coins such as dogecoin. As recently as late 2024, crypto represented Robinhood’s largest source of trading revenue.
Prediction markets soared in popularity in the lead-up to the 2024 U.S. election, with traders pouring billions into bets on election outcomes. Kalshi that year gained approval to operate in the U.S., paving the way for other apps to follow. Late that year, Robinhood launched its first event contract, allowing users to bet on the winner of the U.S. presidential election. It soon added other events including sports, which has become one of its biggest categories, positioning it to capture more revenue as crypto interest waned.
Robinhood didn’t start out with its own exchange for prediction contracts, instead sending most of its user bets to Kalshi, with the two companies evenly splitting a fee of 2 cents per contract.
But in June, a joint venture between Robinhood and Susquehanna International Group launched a prediction markets exchange called Rothera. Robinhood has been sending some bets, including World Cup wagers, to that new exchange.
Robinhood lowered its fees of prediction markets for its users, the company has said. Now it is charging up to 1 cent per contract fee, in addition to a fee that differs depending on which exchange executes the order. If it sends the orders to Kalshi, Kalshi still charges a 1-cent fee per contract.
The shift means Robinhood and Kalshi have become less interdependent. Robinhood orders made up only 17.5% of Kalshi’s trading volume in the second quarter this year, down from nearly 50% the same period last year, according to data from Artemis.
By using Rothera rather than Kalshi to execute the orders, Robinhood will “have more control over” its prediction markets business, said Dolev. But he doesn’t think there will be a big margin difference between the two models for Robinhood because it will have to provide incentives to users.
Overall, Kalshi still leads in prediction markets activity by a wide margin, with about $33 billion in monthly notional volume in June. Polymarket had $14 billion, while Rothera, which executes trades for Robinhood as well as some market makers, had $2.1 billion, according to data from Artemis.
And Robinhood isn’t the only popular financial app pushing into prediction markets. Coinbase launched in the sector this year, though it’s still a smaller player. In the second quarter, prediction markets surpassed $100 million in annualized revenue, Coinbase said, without disclosing an exact quarterly figure.
The boom in prediction market activity also comes with regulatory uncertainty. Sports betting faces legal risks because multiple states have sued prediction markets platforms, saying they operate as unregistered gambling apps. But a federal regulator, the Commodity Futures Trading Commission, argues it has jurisdiction to regulate prediction markets.
And the betting activity can come and go based on what’s going on in the real world. For instance, Robinhood’s second-quarter surge came during the World Cup, an event that takes place once every four years.
That made June and July volumes “abnormally strong,” according to a research note on Robinhood by Ed Engel, an equity research analyst at Compass Point. Still, U.S. football season is coming up this fall, he noted, which should provide a fresh boost.