Robinhood (HOOD) Expands Beyond Trading as the Bull Case Gains Strength

Robinhood Markets, Inc. (HOOD) is expanding beyond its core trading business, and that shift is starting to strengthen the bull case. The innovative broker is building a more credible position in emerging areas such as regulated prediction markets, which could broaden participation among both retail users and institutional capital.

Alongside growth in products such as gold, lending, and deposits, this evolution points to a more durable and diversified business model, while the current valuation still appears reasonable relative to the opportunity. For these reasons, I remain bullish on HOOD stock.

The Institutional Pivot

The bears have argued for years that Robinhood made risky trading feel a little too easy. The platform had a reputation as a place where people could jump into speculative bets with little friction, which made many investors skeptical about how seriously they should take the quality of its retail clients.

That’s why this week’s decision to restrict certain high-risk event contracts and “mention markets” makes me think that Vlad Tenev and his team are trying to show that prediction markets on Robinhood can be built with more discipline and staying power beyond the more volatile transaction-based revenues.

I don’t think this is taking the fun out of it either. At the end of the day, this is about making the platform sturdy enough that when larger, more serious capital wants in, the system can actually handle it. Big institutional money has been circling prediction markets for a while, but most of those players have been hesitant to jump in. The risk is not really on the financial side, but on the reputational side. No pension fund or sovereign wealth manager wants to get anywhere near a market that looks vulnerable to manipulation, insider behavior, or a public scandal. Here’s where Robinhood’s opportunity comes in.

A Trillion-Dollar Horizon and the Gold Standard

The timing of all this is amusing and makes a lot of sense, especially given Bernstein’s view that prediction market volume could reach $1 trillion by 2030. That’s a huge number, and it says a lot about where this space may be heading. What used to look like a niche corner of crypto is starting to take shape as a much bigger market for pricing information and probabilities, with the potential to become something much closer to a mainstream asset class.

However, the bullish case for Robinhood extends far beyond betting on how its retail traders perform across various market environments. Have you looked at the “Gold” ecosystem lately? The company is evolving into a full lifestyle bank. Its 3% cash-back credit card, and the steady march of record net deposits, which hit a staggering $68 billion last year, suggests strong customer loyalty.

When you combine such elements as the stickiness of the Gold membership with the explosion in margin lending, now at a record $18.4 billion, and a potentially successful journey into prediction markets, you see a business that has successfully diversified its revenue streams. This is likely to turn Robinhood into a broker that can still grow its top and bottom lines rapidly, even if the “trading” engine occasionally slows.

Is Robinhood Overvalued Today?

The big question, obviously, is valuation. I get the hesitation, even after the stock’s year-to-date pullback, because it is still trading at about 42x this year’s consensus earnings per share (EPS) estimate of $2.08. That surely doesn’t look cheap on the surface. It also prices in a powerful earnings growth story over the medium term.

Still, I believe Robinhood can deliver on this story because there is massive operating leverage hiding in plain sight. For context, last year, the company more than doubled its revenue while keeping operating expenses essentially flat. Even if the current multiple feels high, you have to consider that the stock is likely to continue growing its EPS at exceptional rates for years, as this margin expansion persists amid a more stable revenue outlook, given ongoing diversification.

Expanding into international markets and advisory services could unlock EPS compounding in the low 20% range over the medium term — but execution risks remain high.

When you factor in that kind of compounding, the “expensive” stock of today starts to look remarkably cheap by tomorrow’s standards. The market usually reacts to what just went wrong, not to what may be starting to go right. Yet when you step back and look at the bigger picture, you see that Robinhood has already built the platform, it has the users, and its earnings power is starting to show. This also just isn’t the same company that went public in 2021. It looks more focused now, more profitable, and a lot more disciplined.

Is HOOD Stock a Buy, Sell, or Hold?

Despite its underperformance, Robinhood stock maintains a Strong Buy consensus rating on Wall Street, based on 14 Buy and three Hold ratings. Notably, no analyst rates the stock a Sell. Also, HOOD’s average price target of $105.19 implies about 15.91% upside over the next 12 months.

Final Thoughts

Robinhood seems to have outgrown the phase of being just the loud newcomer shaking things up. It is becoming more durable than that and more focused on serving as a venue for handling larger capital flows. If prediction markets really do expand into something much bigger, that discipline could end up mattering a lot, particularly to the earnings growth story, which is already riding a favorable margin expansion trend.

Thus, despite the valuation still looking stretched even after the recent year-to-date decline, Robinhood’s upside likely remains robust.