Robinhood Goes All In On Prediction Markets with Susquehanna. The Stock Rises.

Robinhood Markets made its public trading debut in 2021. (Getty Images)

Key Points

• Robinhood Markets’ shares rose 6.3% after announcing a new futures and derivatives exchange with Susquehanna International Group.
• The new independent exchange will be managed by a joint venture, with Robinhood as the controlling partner.
• Robinhood’s prediction markets, including a partnership with Kalshi, generated over $100 million in annualized revenue.

Shares of Robinhood Markets essentially flatlined following the online brokerage’s public trading debut in 2021. But a recent flurry of attention around prediction markets has put the stock back in the spotlight.

On Tuesday, the company unveiled its latest initiative: a futures and derivatives exchange, in collaboration with Susquehanna International Group. Shares gained in after-hours trading following the news and continued their ascent on Wednesday, jumping 6.3%. The benchmark S&P 500 index was up 0.4%.

The independent exchange will be managed by a joint venture, with Robinhood serving as the controlling partner and Susquehanna brought on as a day-one liquidity provider, the partners said. At its core, the initiative is a way to expand Robinhood’s range of prediction contracts, which span everything from sports events to elections.

Unlike traditional fixed-odds sportsbooks, prediction markets use peer-to-peer pricing, which reflects ever-changing consensus attitudes. Users can bet on the outcome of events a sportsbook typically wouldn’t offer.

Robinhood has rolled out a series of offerings to capitalize on the excitement around prediction markets. The broker said in March that it was teaming up with KalshiEX, an exchange regulated by the Commodity Futures Trading Commission, as it launched a “prediction markets hub” directly in the Robinhood app.

This hub quickly emerged as one of Robinhood’s fastest-growing product lines by revenue, with the company writing in its third-quarter earnings release that the predictions market segment was “growing rapidly.” In the year since its launch, nine billion contracts have been traded by more than one million customers, the company said.

Along with Bitstamp, a Luxembourg-based crypto exchange that Robinhood acquired in June, the company’s prediction markets line of business topped $100 million in annualized revenue in under a year.

The new exchange will also be acquiring MIAXdx, a business that clears and executes derivatives trades.

Miami International Holdings said it had agreed to sell 90% of the issued and outstanding equity in MIAX Derivatives Exchange to Robinhood and Susquehanna. MIAXdx has approval from the CFTC to list and clear fully collateralized futures, options on futures, and swaps.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com