Robinhood stock is climbing as the young brokerage bets on prediction markets to help grow and retain its customers.
The trendy, app-based brokerage hopes to capitalize on a cultural shift in the U.S. toward legalized sports betting. "I think we as Americans put a stigma on this, but sports is a complex, it's a business," Steve Quirk, chief brokerage officer for Robinhood Markets, told Investor's Business Daily's "Investing with IBD" podcast.
Robinhood's move into the space comes after sports betting was federally legalized in the U.S. seven years ago. Legalization now rests on a patchwork of growing state approvals, and is increasingly crowded by industry heavyweights like DraftKings and Flutter Entertainment, owner of FanDuel.
Quirk sees Robinhood's new product as a natural consequence of that momentum. "No (sports) league would mention any of these sites, now they're partners or owners," he said.
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Robinhood Stock Marches On
The move comes as Robinhood stock hit an all-time high of 117.70 on Tuesday. Robinhood stock has continued to trade near that area, at around 106 per share in today's market.
Robinhood stock leads IBD's finance and investment banks and brokers industry group with a No. 1 ranking, according to IBD Research and maintains a stellar Composite Rating of 99.
Robinhood also maintains a spot on the Leaders Watchlist in IBD Leaderboard. The stock breezed past its 66.91 buy point in May.
Prediction Markets Born From The Ballot
With event contracts, the brokerage company wants to tap into a recent cultural wave in the U.S. that's reassessing the traditional resistance to prediction markets. It hopes that interest will help drive additional customer growth and trades.
"The first (prediction market) we rolled out was around the presidential election, and we rolled it out a week before the election because there was some regulatory clarity that it was going to be permissible," Quirk said. "We built that in like two weeks, and the week before the election we launched."
Quirk says prediction markets can also help indicate people's true sentiment toward something.
"The most fascinating aspect of event contracts is the information that's available to glean from those … is you can understand how something is being perceived," he said. "A poll is great, but let's be honest, polls don't have any dollars behind them."
Trading Or Gambling?
The broker followed those prediction markets with others, focusing on the Fed's next move and other sports. On Tuesday, Robinhood launched prediction markets around pro and college football.
But there's also tension between entertainment-focused prediction markets and purchasing stocks like Nvidia or Tesla. Trading is regarded as a highly regulated financial discipline, while gambling is naturally speculative.
Robinhood says it scrutinizes its clients more carefully than in other betting apps. "We're very careful," Quirk said. "You actually have to become a customer of Robinhood and have to go through some suitability to get this."
Hedging For Future Growth
Robinhood's foray into event contracts comes as it tries to sustain growth by figuring out what customers want beyond trading. Quirk says offerings like crypto trading, retirement accounts and yield accounts come from the same pipeline of growing with the individual retail investors that made Robinhood a household name.
User growth and retention are key. During the company's most recent earnings, Robinhood reported monthly active users grew, year-over-year, to 12.8 million, a decrease from 14.4 million active users in Q1 and a miss in analyst expectations of 13.7 million.
"We are deeply aware of what our customers are looking for," Quirk said. "It's also fun to deliver things that (customers) would have never imagined were possible."
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