Robinhood (NYSE:NASDAQ:HOOD) stock has been on fire over the past week, coinciding with March Madness and the launch of a new predictions market.
The predictions market was rolled out last week just before the NCAA men’s and women’s college basketball tournaments, also known as March Madness, one of the biggest sports betting events on the calendar. The predictions market allows customers to trade, or bet, on the outcomes of major events, like the March Madness tournament, to win money.
But it is not just for betting on sports; it could apply to any major event, like whether or not the Fed will raise or lower rates in May, or something related to politics or entertainment.
“We believe in the power of prediction markets and think they play an important role at the intersection of news, economics, politics, sports, and culture,” JB Mackenzie, GM of futures and international at Robinhood, said. “We’re excited to offer our customers a new way to participate in prediction markets and look forward to doing so in compliance with existing regulations.”
Robinhood officials said it enables the firm to better serve its customers as they look to engage with events that align with their interests.
There are only a few predictions markets in the U.S., so it could be a nice niche for Robinhood with its reach and customer base. The prediction market is available on the Robinhood App and runs through KalshiEX, a CFTC regulated exchange.
Since the prediction market hub debuted last week, Robinhood stock has soared about 21% to over $48 per share, including a 9% jump on Monday.
Massachusetts Launches Probe
On Monday, Reuters reported that Massachusetts Secretary of State Bill Galvin issued a subpoena to Robinhood over the predictions market.
In an interview with Reuters, Galvin said he was concerned about “linking a gambling event on a popular sports event that’s especially popular to young people to a brokerage account.”
His office is seeking marketing materials and how many Massachusetts residents have requested to bet on college sports through the predictions market.
“This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing,” Galvin added, via Reuters.
Robinhood, in a statement to Reuters, said the predictions market is regulated by the federal Commodity Futures Trading Commission (CFTC).
“Prediction markets have become increasingly relevant for retail and institutional investors alike, and we’re proud to be one of the first platforms to offer these products to retail customers in a safe and regulated manner,” a Robinhood spokesperson told Reuters.
Robinhood stock was up again on Tuesday, rising about 1.4% after the opening bell. It is now up about 30% year-to-date and 164% over the past year. Its P/E ratio, while still a bit high at 31, has come down from 64 at the end of the year.
Analysts have a median price target of $67.50, a nearly 40% increase over the current price, so they clearly see some upside with Robinhood stock.