"Internet-Famous Broker" Robinhood Sees Major Shift in Revenue Structure: Prediction Market Revenue Surpasses Stock Trading

The broker that started with zero commissions is turning sports betting and election wagering into a major business.

Robinhood released its second-quarter earnings report last week, revealing that prediction market revenue surged more than tenfold year-over-year to $156 million. This segment now accounts for 20% of total trading revenue, surpassing stock and cryptocurrency trading for the first time to become the second-largest trading business, trailing only options. This shift comes less than two years after Robinhood officially entered the prediction market.

What does this figure imply? Annualized based on second-quarter data, Robinhood's prediction market business is generating over $600 million in revenue.

Dan Dolev, an equity research analyst at Mizuho Securities, was blunt: "Robinhood users love to gamble, and prediction markets hit the spot. It is the perfect substitute for cryptocurrencies because it delivers a faster sense of reward to the brain—you don't have to wait."

From Stock Trading to Betting on the World Cup: What Are Users Chasing?

The logic of prediction markets is simple: users bet on the outcomes of real-world events in a "yes/no" format, including World Cup matches, elections, and even weather. This immediate and straightforward gameplay aligns highly with Robinhood's retail user base.

Over time, Robinhood's trading revenue structure has drifted with market trends. During the meme stock frenzy in 2021, stock and options revenue surged; subsequently, cryptocurrencies took the baton, with meme coins like Dogecoin driving a spike in crypto trading revenue. Until late 2024, cryptocurrencies remained Robinhood's largest source of trading revenue.

The turning point occurred around the 2024 U.S. presidential election. Prediction markets saw a sudden surge in popularity, with large amounts of capital flowing in to bet on election outcomes. Kalshi received approval to operate legally in the U.S. that year, paving the way for other platforms to follow suit. Robinhood promptly launched its first event contracts in late 2024, allowing users to bet on the U.S. presidential election results, and subsequently listed categories such as sports events.

The revenue peak in the second quarter was largely driven by the World Cup. Ed Engel, an equity research analyst at Compass Point, pointed out in a research report that this led to "exceptionally strong" trading volumes in June and July. However, he also noted that the U.S. football season will kick off this autumn, potentially bringing a new round of boosts.

Building Its Own Exchange and "Splitting" from Kalshi

Initially, Robinhood did not have its own prediction market exchange but rather routed user orders to Kalshi, with both parties splitting the $0.02 per contract fee 50-50.

This landscape is changing. In June this year, Robinhood and Susquehanna International Group jointly established Rothera, a prediction market exchange, and began transferring some orders (including World Cup-related bets) to this platform for execution.

The fee structure has also been adjusted. Robinhood currently charges users up to $0.01 per contract, plus an additional fee that varies depending on the executing exchange—if orders are still sent to Kalshi, Kalshi charges an additional $0.01 per contract.

As a result, the mutual dependence between the two companies has significantly decreased. According to Artemis data, the proportion of Robinhood's orders in Kalshi's trading volume has dropped from nearly 50% in the same period last year to 17.5% in the second quarter of this year.

Dan Dolev believes that using Rothera will give Robinhood "more control over its prediction market business." However, he also pointed out that the margin difference between the two models will not be substantial, as Robinhood needs to provide incentives to users.

Industry Landscape: Kalshi Remains the Leader as Competitors Flood In

Despite Robinhood's strong momentum, Kalshi's dominance in the prediction market remains unshaken. According to Artemis data, Kalshi's monthly notional trading volume in June this year was approximately $33 billion, Polymarket's was $14 billion, and Rothera's (which executes trades for Robinhood and some market makers) was $2.1 billion.

In terms of revenue, Kalshi's annualized revenue exceeded $2 billion in June this year, growing about threefold since last November. In contrast, Polymarket's growth rate has slowed significantly recently.

Robinhood is not the only new entrant. Coinbase also entered the prediction market this year, with annualized revenue from this business exceeding $100 million in the second quarter, although specific quarterly figures were not disclosed, indicating it remains a smaller player.

The prosperity of prediction markets is accompanied by regulatory uncertainty. Several states have filed lawsuits against prediction market platforms, alleging they operate as unregistered gambling applications.

Meanwhile, the federal regulator, the Commodity Futures Trading Commission (CFTC), claims regulatory authority over prediction markets, classifying them as financial derivatives rather than gambling. The legal tension between these two classifications has yet to be resolved.