The Situation
Online broker Robinhood (HOOD) announced the offering of election outcome trading this morning, moving the stock 3% higher in early trading.

Robinhood steps into the multi-billion dollar market as arguably the most household name, setting them above existing platforms.

The company has been adding new “investment” features to their platform over the last few months as they try to turn their app into a one-stop shop for investors.

With the election only days away, the move isn’t going to move the needle for this quarter’s earnings. That said, Robinhood’s new product offers a view of where the company may be headed.

The Story
“Investing” in the upcoming election results is far from a new concept.

For more than three election cycles, investors have been able to “position” themselves to profit on almost any major candidate or issue.

Historically, “investors” had to use offshore accounts through “markets” that were being made in another country to place their bets on a political outcome.

More recently, that activity has found itself onto the shores of the United States, but nothing like today’s announcement.

[Monday] morning Robinhood announced the availability of election outcome contracts based on next Tuesday’s contest between Donald Trump and Kamala Harris.

These contracts are being offered through Robinhood’s Derivatives unit, which is operated by a lesser-known broker-dealer Interactive Brokers (IBKR).

The contracts are binary, which means that the payout is based on a yes/no outcome from the election in question.

We’ve seen an increase in the predictions market over the last two months as the Commodity Futures Trading Commission (CFTC) recently failed to stop election outcome trading.

It has been estimated that there was more than $1 billion wagered on the outcome of the 2020 election.

Daily betting on the 2024 election has grown considerably thanks to the continued “socializing of gambling”.

Betting sites like Polymarket and others have collectively seen over $2.8 billion wagered on the outcome of the current presidential race as the race has become hotly contested.

What Does this Mean for Robinhood
First, when it comes to how much money Robinhood will make from the addition of election outcome futures to their products, we’ll have to wait.

That answer will come over the next [seven] days as we watch the inflow of money into Robinhood’s program. Keep in mind that the election outcome is not a program that will provide consistent recurring revenue. But the move does break Robinhood closer to the world of gaming.

The latest move shows Robinhood’s creativity and drive to get out there and expand its offerings in a move to diversify revenue streams.

The company was called out early in its life for basing its business off of “Payment for Order Flow”, a practice that is criticized by many as being opportunistic for the broker dealer.

While payment for order flow appears to be here to stay, Robinhood is looking to make it a smaller part of its business.

Is Robinhood a Buy With this Move?
The fact is that the stock was a buy before the move.

Shares of Robinhood have appreciated more than 200% over the last year as the company has expanded their offerings over the last year.

Investors took advantage of Robinhood’s “bonus” program to roll their retirement accounts to the online broker resulting in a surge of assets on their books.

Higher trading volume and assets mean more revenue for Robinhood.

Year-over-year revenue growth is heading back to its post-pandemic averages as the last two quarters have seen 40% plus growth on a year-over-year basis.

Those numbers stand out as best in industry growth numbers, though the scale of Robinhood against its industry peers makes the growth more easily attainable.

Earnings results have been similarly positive as HOOD has beat analyst expectations each of the last three quarters.

The company’s EPS performance continues to show the strengthening profit from Robinhood’s operations.

Analysts are split on the stock with 48% of the Wall Street analysts recommending the stock as a buy and the same percentage a “Hold”. That means that the analyst community has plenty of room for upgrades on Robinhood as the stock maintains its performance.

All-in-all, Robinhood shares present themselves as a strong outperformer in 2025.

What Happens from Here
Robinhood is still playing catch-up, trying to get back to its Peak Pandemic Prices.

The stock surged to $80 during the Pandemic, don’t expect to see that for some time, but strong performance for 2025 is in the cards.

The stock is in a short- and long-term bullish trend, forecasting higher prices for the next 6-12 months.

The company reports earnings [tomorrow] on October 30. Shares have posted strong post-earnings performances for the last year as investors respond to strong growth numbers.

Expect the stock to clear the $40 level by the end of 2025 with investor’s focus turning to a $50 target in the first half of 2025.

How to Trade it
Shares of Robinhood are inexpensive meaning that the stock is an easy buy and hold position.

Expect to see some resistance as shares approach round numbers loke $40 and $50, but Robinhood’s strong trendlines will continue to provide strong underpinnings for the continuation of its rally higher.

— Chris Johnson

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Source: Money Morning