July 29 (Reuters) - Robinhood Markets beat Wall Street estimates for second-quarter profit on Wednesday, as robust trading in equities, options and prediction markets helped offset weakness in cryptocurrency trading.
Retail trading remained robust during the quarter as heightened market volatility, driven in part by the U.S.-Iran conflict and its impact on inflation expectations and the Federal Reserve's interest-rate outlook, kept investors active.
Adjusted earnings came in at 48 cents per share, topping analysts' average estimate of 44 cents, according to data compiled by LSEG.
Transaction-based revenue jumped 44% from a year earlier to $776 million, driven by gains in equities, options and event contracts, which generated $156 million in revenue.
PREDICTION MARKETS EMERGE AS GROWTH DRIVER
"The takeaway from the quarter is businesses (are) humming, firing across all cylinders, (with) record transactions across equities, options, prediction markets," Shiv Verma, chief financial officer, said on a media call.
The rapid expansion of prediction markets has shifted investor focus away from cryptocurrency, with analysts expecting the business to play an increasingly important role in Robinhood's revenue mix.
Interest in prediction markets surged during the 2024 U.S. presidential election, boosting user engagement and trading activity.
"This was not merely a prediction-market beat. Robinhood delivered better-than-expected transaction revenue, NII, deposits, subscription growth and expense control simultaneously," said Bill Birmingham, managing director at REX Financial.
Third Bridge analyst Jacob Zuller said prediction markets had evolved from a curiosity into arguably Robinhood's most important growth driver. He added that prediction markets would serve as a customer acquisition funnel.
CRYPTO REMAINS UNDER PRESSURE
Robinhood's transaction-based crypto revenue fell 38% from a year earlier to $100 million.
Cryptocurrency trading remained subdued as weaker digital asset prices, persistent market volatility and a shift in investor interest toward artificial intelligence-related assets weighed on trading.
Shares of Robinhood fell 0.8% in extended trading. The stock has dropped 20.6% this year, as of last close.
"If there's one concern, it's valuation. After the stock's huge run, expectations are elevated," said David Bartosiak, stock strategist at Zacks Investment.
(Reporting by Prakhar Srivastava in Bengaluru; Editing by Shailesh Kuber)
