In addition to broadening its yes/no derivatives platform beyond its current focus on sports, Robinhood Markets (NASDAQ: HOOD) hopes to become a prediction market.
After speaking with JB Mackenzie, Vice President & General Manager of Futures & Prediction Markets at Robinhood, Deutsche Bank analyst Brian Bedell offered his thoughts on the company's extensive ambitions for prediction markets.
"We see HOOD aspiring to be a leader in prediction markets from a multi-dimensional perspective, including retail usage (and integration into HOOD’s wide product array), a high volume and multi-product exchange vertical, leading market making capabilities, and a longer-term institutional capability focused on event contracts over a wide array of uses, along with longer-term international ambitions,” observes the analyst.
With a price objective of $121, he grades Robinhood shares as "buy," suggesting a 75% increase from the stock's closing price on March 24.
Robinhood Desires to Go Beyond Contracts for Sports Events
Although estimates differ, a number of data sources verify that sports event contracts make up a disproportionate amount of turnover on yes/no exchanges. This is most likely the case on Robinhood, which caters mostly to retail clients who are active traders, many of whom are also sports bettors.
In addition to being crucial for diversification, expanding the prediction markets platform beyond sports is important because politicians and state regulators are closely examining the economic model of sports derivatives and, in certain situations, advocating for complete prohibitions on certain event contracts.Robinhood is focusing on expanding its prediction markets beyond sports, as Bedell points out.
“Although management strives to continuously enhance its sports offerings, mgmt. believes the market will evolve well beyond sports over time, with a focus on investment-oriented financial/economic/macro contracts, which we agree will be a major evolutionary driver for the industry,” he adds.
Other areas, such as bitcoin pricing, politics, culture, and economic forecasts, are seen by some experts as crucial to the expansion of prediction markets and essential in terms of less reliance on contracts for sporting events.
The Evolution of Robinhood Outside of Sports Will Take Time
One of the company's fastest-growing divisions is prediction markets, but a large portion of that growth has undoubtedly been fueled by sports derivatives, so investors may need to exercise patience as Robinhood tries to entice traders to yes/no contracts outside of sports. Bedell thinks the business can eventually achieve that goal.
“While the non-sports side will take time to evolve, we remain constructive on management’s execution of this product roadmap, and reiterate our Buy rating, with HOOD being our top growth pick in the online brokers,” concludes the analyst.
As the US prediction markets sector develops, several observers have predicted that DraftKings, FanDuel, Kalshi, Polymarket, and Robinhood will likely lead a five-horse race. Bedell didn't comment on how Robinhood and Kalshi were getting along. The brokerage business may adopt a go-it-alone strategy in the market after announcing a partnership with Susquehanna International Group, a prominent market maker, in November of last year.
