Gone are the days when you would need to visit a casino to gamble. Now you can do it right on your smartphone or computer, 24 hours a day.
Prediction markets have exploded. Similar to futures trading, participants can buy contracts, essentially betting on future outcomes across sports and politics, and almost anything else. It's still early, too. Industry experts believe that prediction markets could surpass $1 trillion in annual trading volume by 2030.
Robinhood Markets (HOOD 1.60%) has wasted little time jumping into the mix, integrating prediction markets directly into its brokerage platform. It's a bold decision that could affect the fintech giant's long-term trajectory.
Image source: Getty Images.
Leaning into Robinhood's core business
Investing platforms have changed dramatically over the past decade, and Robinhood deserves much of the credit. The company was at the forefront of zero-commission stock trades and has become very popular with individual investors, especially younger generations.
That, along with Robinhood's rapid rollout of new products, like Gold membership, a credit card, retirement accounts, and banking, has fueled its growth and the stock's strong performance over the past year. That said, the company still makes most of its money from fees and interest on trading and margin borrowing.
In other words, Robinhood's business thrives on speculative investor behavior. Prediction markets feed into that. Since many investors already trade stocks, options, and cryptocurrencies on Robinhood, integrating prediction markets makes a lot of sense. It gives investors easy access to do the same thing there, too.
Could chasing the money work against Robinhood?
Despite amassing 26.9 million funded accounts -- not too far behind Charles Schwab's 38.2 million -- Robinhood has just $325 billion in total platform assets. Charles Schwab has over $11.8 trillion in assets. Simply put, Robinhood is popular, but it's still not where many investors keep significant wealth.
Will that change? A massive wealth transfer is just starting as older generations pass their wealth to younger investors, many of whom use Robinhood. But there is a difference between handling money you can afford to lose and handling your life savings. Many investors may not like how easily Robinhood's platform enables risky behavior. Of course, time will tell whether Robinhood can sustain its success.
NASDAQ: HOOD
Key Data Points
For now, Robinhood is a winner
Robinhood is one of the fastest-growing fintech companies on the market. Many of those new products are still only just starting to roll out. Robinhood has earned $4.2 billion in revenue over the past 12 months, and analysts expect that to rise to $5.5 billion this fiscal year and $6.4 billion the following year.
The stock has soared by over 110% over the past 12 months. Shares are a bit pricey at a price-to-sales ratio of 23, but there's no doubt that Robinhood is worth checking out as a long-term investment if market volatility walks back some of those gains over the coming months.
