Market revenue is expected to surpass cryptocurrency trading. Robinhood (HOOD.US) has been upgraded by Morgan Stanley for two consecutive levels to "Overweight."

Morgan Stanley believes that Robinhood Markets (HOOD.US) is demonstrating its ability to continuously launch new products and convert its large user base into new revenue sources through its rapidly growing predictions market business. Analyst Michael Cyprys has therefore upgraded Robinhood's rating from "underweight" to "overweight," as he believes the market may be underestimating the company's long-term growth potential. Cyprys noted that Robinhood's predictions market currently has over 2 million users, generating $156 million in revenue in the second quarter. More importantly, these users are not only engaging with the predictions market but are also adopting other financial products offered by Robinhood, indicating that the company is enhancing the asset scale, trading activity, and monetization capabilities of individual customers through a continually expanding product line. In a report released on Tuesday, Cyprys stated that the predictions market business has become an important "validation case" for Robinhood's ongoing expansion of revenue sources. He believes that Robinhood is turning its ability to rapidly launch new products into stronger customer economics. Specifically, Robinhood users are allocating more assets on the platform and participating in more trades, while the revenue generated from each customer is also increasing. Cyprys pointed out that this trend suggests Robinhood has a longer growth runway than the market currently expects. The rapid expansion of the predictions market is particularly noteworthy. Robinhood users can trade on the outcomes of real-world events in areas such as politics, economics, and sports through related products, making this business a rapidly growing source of revenue for the company. Robinhood CEO Vlad Tenev previously stated that the predictions market is the fastest-growing business in the companys history. The predictions market generated $156 million in revenue in the second quarter, surpassing cryptocurrency trading. Robinhood's second-quarter results show that the revenue from the predictions market has now exceeded that of its cryptocurrency trading business, further highlighting the growth rate of this new venture. Data indicates that over 2 million Robinhood users are participating in the predictions market, contributing $156 million in revenue in the second quarter. For Robinhood, it is more important that the users engaging in the predictions market begin to utilize more of the other financial services available on the platform. This cross-usage increases user retention and expands the long-term revenue that Robinhood can derive from individual customers. Thus, Cyprys believes that the predictions market is proving that Robinhood can leverage its vast retail investor user base to continually roll out new financial products and rapidly achieve monetization. This has significant implications for Robinhood's future growth model. If the company can consistently replicate this model, its revenue growth will not have to overly rely on market cycles for traditional trading businesses such as stocks, options, or cryptocurrencies. Rothera becomes a key layout as Robinhood extends from a trading platform to underlying infrastructure. Another critical component of Robinhood's predictions market strategy is the derivatives exchange Rothera. Rothera is co-owned by Robinhood and Susquehanna International Group. July's FIFA World Cup served as an important testing ground for the exchange. Cyprys believes that Rothera is significant because it can extend the distribution advantage that Robinhood originally had at the retail user level into financial market infrastructure. He stated, "Rothera extends Robinhood's distribution advantage into the infrastructure domain." This means that in the future, Robinhood may not only serve as a front-end platform for consumers offering stocks, options, cryptocurrencies, and predictions market trading but could also progressively strengthen its control over the trading underlying infrastructure. If this model develops smoothly, the company could gain greater autonomy in product design, trade execution, and revenue sources. Robinhood Banking assets exceed $4 billion. In addition to the predictions market, Robinhood's other businesses are also continuing to expand. Tenev stated on social media on Monday evening that the assets managed by Robinhood Banking have surpassed $4 billion. This further shows that Robinhood is gradually evolving from an online brokerage initially focused on stock trading into a comprehensive platform covering investment, trading, banking, and other financial services. In recent years, Robinhood has been continuously adding new products and services in hopes of encouraging users to hold more assets and engage in a wider variety of financial activities on the platform. In Cyprys's view, this product expansion is improving Robinhood's customer economics. As the assets held by each user increase and their trading and financial activities become more diverse, the potential for revenue generation from the existing customer base also grows. Perpetual contracts and AI smart trading may become the next growth catalysts. Beyond the predictions market and banking business, Cyprys also pointed out that there are several potential growth catalysts for Robinhood in the future. These include perpetual futures and agent-based trading. Agent-based trading generally refers to using AI agents to autonomously complete market analysis, investment decisions, or trade execution based on user-defined goals and rules. If Robinhood further integrates AI technology into its investment platform, it could offer users a more automated trading experience and create new products and revenue streams. Meanwhile, the market will also be watching Robinhood's company event scheduled for September 29-30, where investors may gain more insights into new products and future strategy. Cyprys believes that these potential new businesses, similar to the predictions market, have the opportunity to rapidly scale up, leveraging Robinhood's vast retail user base. The influence of predictions markets is expanding, and Wall Street is beginning to regard them as investment signals. Notably, the influence of predictions markets in Wall Street's investment decision-making is also increasing. A team led by Morgan Stanley strategist Eli Carter stated last month that predictions markets, including Kalshi, are becoming an "increasingly useful" source of signals for investors. Particularly regarding assessing Federal Reserve policies and important U.S. economic data, the trader expectations reflected by predictions markets can provide traditional financial markets with additional references. This suggests that the value of predictions markets may derive not only from retail user trading demand but that their prices could gradually become important tools for institutional investors to gauge market expectations. Overall, Morgan Stanley's upgrade of Robinhood's rating from "underweight" to "overweight" is not solely based on optimism regarding the predictions market; rather, it reflects the belief that this business has demonstrated Robinhood's capacity to continuously launch new products and successfully cross-sell to existing users. Over 2 million users, $156 million in revenue in the second quarter, and the predictions market revenue surpassing cryptocurrency trading all indicate that this model is achieving results. Meanwhile, Robinhood Banking assets exceeding $4 billion and Rothera extending the company's business footprint into trading infrastructure. With the advancement of potential new products such as perpetual futures and AI smart trading, Morgan Stanley believes that Robinhood is creating longer growth potential for the company than previously anticipated by the market through increasing user assets, enhancing trading activity, and expanding monetization channels for individual customers.