Robinhood's Fastest-Growing Business Isn't Trading Stocks

Robinhood Markets (NASDAQ:HOOD) built its brand on free stock trades. But the fastest-growing business it runs today isn't stock trading -- or options or crypto, either. It's prediction markets, where customers buy contracts that pay $1 if they call an outcome right (an election, say, or a football game) and nothing if they don't.

In the second quarter, these event contracts, as Robinhood calls them, produced $156 million of revenue, more than 10 times the year-ago figure.

Nothing else the company sells comes close to that growth rate. Options revenue rose 29% year over year. Equities revenue jumped 95%. Crypto revenue fell 38%.

The growth stock, at about $121 as of this writing, has climbed about 11% in a week. And a big part of that price, I think, now rests on prediction markets continuing to scale.

Image source: Getty Images.

Prediction markets are now the No. 2 trading business

A year ago, event contracts were Robinhood's smallest transaction-revenue line. Today, only the options business brings in more.

Showing how quickly the business has scaled, event contracts generated $104 million of revenue in this year's first quarter and $156 million in the second, according to the company's quarterly filings. That is an impressive climb for a line that produced $13 million in the entire first half of 2025. Robinhood's transaction-based revenues climbed 44% in the second quarter from a year earlier, reaching $776 million, and event contracts supplied more of that increase than options and equities combined. The line brought in more than both equities ($129 million) and crypto ($100 million) in the quarter, trailing only options at $342 million.

In other words, event contracts now supply about 20 cents of every transaction-revenue dollar Robinhood collects. A year ago, their share was about 2 cents.

A penny per contract

Each contract trades in penny increments up to $1 and pays out $1 if the buyer is right. Robinhood's cut worked out to about a penny per contract in the second quarter: $156 million of revenue on a record 13.6 billion contracts traded, more than 10 times the year-ago volume.

Robinhood's customers traded about 152 million event contracts a day in August (4.7 billion over the month), about 14 times the year-ago pace.

Of course, demand like this can swing with the calendar of elections, economic events, and sports seasons. August's volume fell 23% from July, and month-to-month totals may stay uneven.

Even at August's slower pace, though, the line would produce roughly $650 million of revenue a year at the second quarter's per-contract rate. For comparison, options, Robinhood's biggest transaction line, brought in $342 million in the second quarter alone, a pace of about $1.4 billion a year.

The tech company is investing like it expects the business to stay. In January, a joint venture Robinhood formed with trading firm Susquehanna International Group bought 90% of MIAX Derivatives Exchange, a federally regulated derivatives exchange and clearinghouse -- a purchase Robinhood called an acceleration of its investment in prediction markets.

Can the growth last?

The law around this business isn't settled. Plaintiffs in six states sued to recover money lost trading the contracts, under state gambling-loss statutes.

Native American tribes have sued over the sports contracts. And Massachusetts securities regulators are examining the offerings, according to Robinhood's latest quarterly filing. And on Sept. 16, Missouri's attorney general ordered Robinhood and five other operators to stop offering sports event contracts in the state unless they get a state gaming license.

The courts have started weighing in, too. In late August, a federal appeals court cleared Nevada to apply its gambling laws to sports-event contracts offered by Robinhood and others. And on Sept. 16, the same court found two tribes likely to win their claim that contracts on their lands violate federal Indian gaming law.

The company's own disclosures warn that changes in federal or state law "could immediately or subsequently prevent" it from offering event contracts at all.

However, none of that has shown up in the results yet. Companywide revenue hit a record $1.31 billion in the second quarter, up 32% year over year, and net income climbed 48% year over year to $573 million (helped by $129 million of one-time gains).

The business case looks solid to me. Event contracts produced about 50% more second-quarter revenue than crypto trading did, and they grew while that business shrank.

But the stock is another matter. At about 42 times expected 2027 earnings, the price arguably already assumes Robinhood keeps finding growth like this for years to come.

Ultimately, prediction markets have earned a spot at the center of Robinhood's growth story. What they haven't proven is staying power -- August's volumes cooled, and the lawsuits are unresolved. I'd rather watch a few more months of data before paying today's price for the stock.

Daniel Sparks and his clients do not have positions 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.