Why Robinhood Stock Skyrocketed Last Month

Robinhood Markets (NASDAQ: HOOD) barreled into August just after publishing an estimates-crushing quarterly earnings report, and its stock only got more popular from there. Thanks in no small part to a rally in cryptocurrencies -- a major focus of the brokerage and financial services company -- its shares ended the month 21% higher.

Monster momentum

The stage was set at the end of July for a pronounced Robinhood rally. Its second-quarter results featured a strong 32% year-over-year gain in revenue (to over $1.3 billion), while headline net profit surged 45% higher to $561 million. Both figures were well higher than the average analyst estimates.

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One negative note in that earnings report was the transaction-based revenue from cryptocurrencies, which sank by 38% to $100 million.

However, worries about this were erased mere weeks later as cryptocurrencies staged an impressive and sustained rally just after mid-August.

Several developments ignited this comeback, including the Treasury Department's promise to double the size of its regular long-term government bond repurchases. President Trump's push for Congress to pass the CLARITY Act, which would provide a regulatory framework for the cryptocurrency industry, also helped.

Rising crypto prices inspired more investors to pile into digital coins and tokens, and Robinhood is one of the brokerages that has embraced crypto trading most enthusiastically. So as cryptos went, so went the company's stock.

Another niche Robinhood dived into wholeheartedly is prediction markets, and like that mid-August crypto rally, these have also been hot. America is a nation of gamblers, and we're happy to wager on almost anything under the sun. In collaboration with top prediction markets company Kalshi, Robinhood offers these services on a wide range of events.

Prediction markets have quickly become a crucial revenue stream for Robinhood. In fact, in that second quarter, they generated more revenue than crypto trading fees.

The great widening

Robinhood has broadened its business to the point where it's no longer dependent on one or even two of its activities to keep the growth train running. At the moment, equities, cryptocurrencies, and prediction markets are immensely popular and producing high transaction volumes.

While this won't last forever for all three, Robinhood should still do well if two, or even one, resists falling into a slump. I believe management has done an admirable job not only by bravely embracing the next-generation markets that today's investors are eager to trade, but also by expanding its reach and scope in the process.

This is an exciting company, and one that I feel has plenty of upside potential with its stock.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.