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Since online brokerage Robinhood (Nasdaq: HOOD) launched its prediction market platform just before the 2024 presidential election, the service has taken off.

It has become Robinhood’s fastest-growing product line roughly one year in. In the third quarter, the prediction market generated $100 million in revenue, which is about 8% of the $1.27 billion in total revenue the company made.

It helped the company achieve record revenue in the quarter, which jumped 100% year-over-year to $1.27 billion. Net income increased a staggering 271% year-over-year to $556 million in Q3, while earnings per share rose 259% to 61 cents per share.

The prediction market momentum has not slowed down, as the Robinhood reported that 3 billion event contracts were traded in November, up 20% from October.

Robinhood stock has also been firing on all cylinders, up a ridiculous 225% year-to-date to around $121 per share. Over the past three years it has generated an average annualized return of 141%, which is better than AI darling Nvidia (Nasdaq: NVDA) which has a three-year annualized return of about 119%.

Parlays and predictions

In the Q3 earnings report, officials said the company would increase investments in prediction markets, where it sees “significant potential.” This week, we learned about the next wave of investments in the prediction markets at its Yes/No event from the Skywalker Ranch near San Francisco.

“Since launching at the end of last year, prediction markets have become Robinhood’s fastest-growing product line by revenue ever, with 11 billion contracts traded by more than 1 million customers,” Robinhood officials said in a release. “But despite the early success, we’ve heard loud and clear that customers want access to more contracts and more advanced trading tools.”

The company announced this week that it was bolstering its offering in the area of sports predictions.

Specifically, it introduced player contracts, where customers can trade individual pro football player performances like anytime TD, passing yards, receiving yards, rushing yards, and more. Player contracts for more sports beyond football will be available soon. This is akin to prop bets.

It also rolled out parlay-like preset combos, where customers can trade preset combinations for individual pro football games. It features a combination of the outcomes, totals, and spreads for a single game. Like any event contract, the combinations will pay $1 dollar, but only if each of the outcomes in the contract resolves correctly.

Early next year, Robinhood will introduce custom combos, where customers can combine up to 10 outcomes into one new contract across pro football games.  

Early stages of prediction market supercycle

Robinhood stock jumped about 4% on Thursday, mainly from some bullish calls by analysts. Deutsche Bank maintained its buy rating for Robinhood stock, saying the company was well-positioned to benefit from a prediction market “supercycle,” which is currently only in its early stages.

In a research note, Deutsche Bank analysts said prediction markets in the U.S. could reach at least 1 trillion contracts in 2027 and more than 5 trillion in 2029, according to the Fly. Robinhood’s advancements and developments in prediction markets and broad platforms puts it at or near the forefront of this supercycle.

In addition, Truist initiated coverage of Robinhood with a buy rating and a $155 price target, which would suggest 28% growth. Truist analysts cited its market share growth as its market expands from the successful launch of new products, like prediction markets.

Robinhood stock has a median price target of $155 per share, which would indicate about 28% growth over the next 12 months. It valuation is high with a P/E of 48, but given its significant growth and its opportunities in new areas like prediction markets, it has massive earnings power.

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