Robinhood’s February 2025: Trade PMR acquisition and the Exciting Future of Prediction Markets

$HOOD continues to redefine retail investing. With steady growth across key metrics, the launch of Prediction Markets and the TradePMR acquisition the investment thesis remains strong.

Read my deep dive on Robinhood here - Robinhood: A Potential 3x to 15x Growth Story in the Making

Robinhood has launched a prediction markets hub within its app, allowing users to trade on outcomes of major events such as Federal Reserve interest rate decisions and college basketball tournaments. This initiative represents Robinhood's entry into a growing market segment that sits at the intersection of financial trading and event-based speculation. The hub operates within a regulated framework through partnership with KalshiEX LLC, a CFTC-regulated exchange (Commodity Futures Trading Commission), ensuring compliance with existing regulations. This approach demonstrates Robinhood's commitment to innovation while maintaining regulatory compliance.

The launch follows an earlier attempt by Robinhood to offer sports event contracts in early February, which was suspended after CFTC intervention. Learning from that experience, Robinhood has worked closely with regulators ahead of this new launch.

JB Mackenzie, VP and GM of Futures and International at Robinhood, said: "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".

The company's new approach reflects a more collaborative relationship with regulators, potentially mitigating compliance risks that could have derailed the initiative.

Financial Impact and Revenue Projections

According to Morgan Stanley analysts, Robinhood's prediction markets platform could generate approximately $260 million in annual revenue. This significant potential revenue stream could contribute about 20 cents to earnings per share, potentially elevating the EPS for 2025 by around 14% at an 80% incremental margin.

These projections highlight the substantial financial impact this new offering could have on Robinhood's overall performance. The impressive 80% incremental margin suggests that prediction markets could be more profitable than some of Robinhood's existing business lines.

The prediction market industry itself is projected to grow substantially, with estimates suggesting it could reach $95 billion by 2032 at a CAGR of 23.1%. This rapidly expanding market presents Robinhood with a significant growth opportunity.

The company's previous experience with election-related event contracts demonstrated strong customer interest, with over 500 million contracts traded within just one week. This enthusiastic customer response suggests that prediction markets could drive increased engagement among Robinhood's existing user base while potentially attracting new customers interested in this unique offering.

Competitive Positioning and Strategic Implications

Robinhood's entry into prediction markets aligns with its broader strategy of expanding access to financial assets traditionally available only to institutions. This approach reinforces Robinhood's brand identity as a democratising force in finance, making sophisticated financial products accessible to retail investors. The prediction markets hub represents an innovative product that differentiates Robinhood from traditional brokerages and could help maintain its appeal to younger, more tech-savvy investors.

The initiative faces competition from other platforms interested in offering similar products, necessitating continued innovation and user experience improvements to maintain a competitive edge. Robinhood's partnership with Kalshi Inc., a regulated exchange, is a strategic move to ensure compliance and leverage existing infrastructure, but it also means sharing revenue.

As the prediction markets space becomes more competitive, Robinhood will need to consider whether to develop its own regulated exchange capabilities to capture more value from this growing business segment.

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February 2025 Metrics

Growth Metrics and Customer Acquisition

Robinhood's funded customer base reached 25.6 million by the end of February 2025, representing an increase of approximately 150,000 customers from January 2025 and an impressive 1.99 million customer increase year-over-year. This steady growth trajectory in customer acquisition demonstrates Robinhood's continued appeal to retail investors and its ability to attract and retain users despite competitive pressures in the retail brokerage market. The monthly customer growth rate appears consistent with previous months, suggesting stable acquisition channels and customer retention strategies. Additionally, the year-over-year increase of nearly 2 million customers translates to approximately 8% annual growth, indicating Robinhood continues to expand its market penetration.

Assets Under Custody (AUC) stood at $187.4 billion at the end of February, showing a temporary month-over-month decline of 8% from January 2025, but a substantial 58% increase year-over-year. The monthly decline likely reflects broader market conditions rather than customer outflows, as net deposits remained positive at $4.8 billion for February.

The company's acquisition of TradePMR on February 26, 2025, which had approximately $43 billion in assets under administration, represents a strategic expansion that isn't yet reflected in the February metrics. When factoring in this acquisition, Robinhood's total assets under management would approach $230 billion, significantly strengthening its market position in the wealth management space. Here’s a direct quote from their press release:

Acquisition will accelerate Robinhood's delivery of investment advisory capabilities to customers by bringing in a scaled RIA (Registered Investment Advisors) custodial platform with approximately 350 firms and more than $40B in assets under administration.

Hear from Robb Baldwin, founder and CEO of TradePMR, as he discusses the acquisition at the 2024 MarketCounsel Summit during Money Chronicles, co-hosted by Johnny Sandquist and Torie Happe.

Synergies Between Robinhood and TradePMR

1. Access to the Next Generation of Wealth
   Robinhood’s 25 million customers represent a younger demographic poised to inherit the upcoming $126 trillion wealth transfer. TradePMR sees this partnership as a unique opportunity to address the longstanding challenge in the financial advisory space—retaining heirs who often fire their advisors upon inheriting wealth. By meeting this generation where they are, Robinhood and TradePMR aim to bridge this gap effectively.

2. Innovative Technology Infrastructure
   Unlike most financial firms that rely on legacy platforms, Robinhood has developed its own proprietary technology on AWS (Amazon Web Services). This modern infrastructure enables seamless scalability and innovation. TradePMR, also operating on AWS, plans to leverage Robinhood’s tech stack to build future systems without the limitations of outdated legacy platforms - a revolutionary shift for the industry.

3. Driving Innovation in Financial Services
   The acquisition provides TradePMR with an opportunity to fill the innovation void left in the Registered Investment Advisor (RIA) space after major consolidations like Schwab’s acquisition of TD Ameritrade. By integrating Robinhood’s cutting-edge technology and user experience, TradePMR aims to foster creativity and growth in the financial advisory sector, ensuring advisors and clients benefit from more advanced tools.

4. Expanding Market Reach
   Robinhood’s vast customer base offers TradePMR a platform to scale its services to a broader audience. This partnership enables TradePMR to connect with younger investors who are increasingly seeking financial advice and wealth management solutions tailored to their unique needs.

5. Commitment to Long-Term Industry Evolution
   Both companies share a vision of pushing the financial services industry forward by prioritizing innovation and adaptability. By focusing on technology-driven solutions and addressing generational shifts in wealth management, Robinhood and TradePMR aim to ensure the RIA space remains relevant and competitive in serving future generations

Net deposits for February totaled $4.8 billion, resulting in a 28% annualized growth rate relative to January 2025 AUC. Over the trailing twelve months, net deposits reached an impressive $53.5 billion, translating to a 45% annual growth rate relative to February 2024 AUC. This strong deposit performance underscores customer confidence in the platform and indicates that users continue to bring new capital to their Robinhood accounts despite market fluctuations. The consistent growth in deposits provides Robinhood with a stable foundation for generating interest revenue and increasing trading activity across its various product offerings.

Customer Asset Distribution and Cash Management

Robinhood's Cash Sweep programme maintained steady performance, with total balances of $26.2 billion at the end of February 2025, essentially flat month-over-month but up 45% year-over-year. Of these balances, $25.5 billion belonged to Gold Cash Sweep members, demonstrating the popularity of Robinhood's premium subscription service among its more affluent customer segments. The Cash Sweep programme represents an important revenue stream for Robinhood, as it allows the company to earn interest income on customer cash balances while providing competitive yields to users.

The significant year-over-year growth in Cash Sweep balances suggests increased customer trust in Robinhood as a primary financial institution rather than just a trading platform. This evolution in customer perception is crucial for Robinhood's long-term strategy of becoming a comprehensive financial services provider. The steadiness of Cash Sweep balances month-over-month, despite market volatility, indicates that customers view these holdings as a stable component of their financial portfolios, providing Robinhood with reliable interest-earning assets.

Trading Activity Analysis

Equity and Options Trading Performance

Equity Notional Trading Volumes reached $142.9 billion in February 2025, showing a modest 1% decrease from January but a substantial 77% increase year-over-year. The slight monthly decline should be contextualized by noting that February had one fewer trading day (19) compared to January (20). When adjusted for trading days, the daily average equity trading volume would show greater stability month-over-month. The massive year-over-year growth rate of 77% indicates significantly higher customer engagement with equity markets compared to the previous year.

Options trading activity continued to demonstrate strong customer engagement, with 165.6 million contracts traded in February 2025. This represents a slight 1% decrease from January but a significant 39% increase year-over-year. The Daily Average Revenue Trades (DARTs) for options actually increased by 9% month-over-month to 1.2 million, despite the fewer trading days in February. This growth in options trading activity is particularly important for Robinhood's revenue model, as options transactions typically generate higher per-transaction revenue compared to equity trades. The 50% year-over-year increase in options DARTs reflects growing sophistication among Robinhood's user base and their increasing comfort with derivatives trading.

Cryptocurrency Trading and Margin Business

Cryptocurrency trading volumes experienced the most significant month-over-month decline among trading categories, dropping 29% to $14.4 billion in February 2025. However, this figure still represents a remarkable 122% increase compared to February 2024. The monthly decline likely reflects broader cryptocurrency market conditions rather than a decrease in customer interest. Daily Average Revenue Trades for cryptocurrency fell 22% month-over-month to 0.7 million but showed a remarkable 133% increase year-over-year. These figures demonstrate that cryptocurrency trading remains an important and growing component of Robinhood's business, despite its inherent volatility.

Margin balances reached $8.7 billion at the end of February, increasing 5% from January 2025 and showing dramatic growth of 129% year-over-year. This robust growth in margin usage indicates increasing customer sophistication and risk appetite among Robinhood users. The margin business represents a significant revenue opportunity for Robinhood through interest income on margin loans. The substantial year-over-year growth rate suggests that Robinhood has successfully encouraged more customers to utilize margin in their trading strategies, likely aided by educational efforts and attractive margin rates.

Revenue Drivers and Financial Performance

Securities lending revenue totalled $22 million in February, down 12% from January but up 69% year-over-year. This revenue stream, while smaller than others, represents an efficient use of customer assets to generate additional income. The year-over-year growth indicates increased institutional demand for borrowing securities held in Robinhood customer accounts, particularly as retail investors have accumulated significant positions in stocks that are challenging to borrow. The monthly decline may reflect seasonal patterns in securities lending demand or changes in the composition of securities held by Robinhood customers.

The overall revenue picture for Robinhood continues to show diversification across trading activity, interest income from cash sweep balances, margin interest, and securities lending. This multi-faceted revenue model helps insulate the company from volatility in any single revenue stream. The consistently strong year-over-year growth rates across these revenue drivers suggest that Robinhood's business model continues to scale effectively even as the company matures. The addition of TradePMR's revenue streams, though not reflected in February's metrics, will further diversify Robinhood's income sources.

Strategic Implications & Final Thoughts

Robinhood’s move into prediction markets aligns with its broader mission of democratizing access to financial tools traditionally reserved for institutions. By offering innovative products like event contracts, Robinhood differentiates itself from competitors while appealing to younger, tech-savvy investors.

The synergies between Robinhood and TradePMR highlight a transformative partnership aimed at addressing key challenges and opportunities in the financial advisory space. Robinhood’s 25 million customers represent a younger demographic poised to inherit $126 trillion in wealth, offering TradePMR a chance to solve the long-standing issue of retaining heirs who often fire their advisors.

Robinhood’s February metrics showcase resilience amid market volatility and continued growth across customer acquisition, AUC, and trading activity. The launch of Prediction Markets adds an exciting dimension to its product lineup with substantial revenue potential and high margins.

As Robinhood evolves from a disruptor into a mature financial services provider, its ability to innovate while scaling will be key to maintaining relevance—and delivering value for shareholders.